Boston, MA -- (SBWIRE) -- 07/24/2012 -- BMI's Egypt Metals Report for Q312 examines the long-term potential of the local end-user markets, but warns that the high-risk environment could limit investment in the short-term.
The report examines the potential for merger and acquisition activity in the Egyptian steel industry as the new democratic scenario opens the possibility for a break-up of Ezz Steel's monopoly. It also examines the promise of expansion in primary aluminium smelting with Egyptalum seeking to expand production to 400,000tpa. The report also analyses the trends in export markets, particularly in relation to the surge in steelmaking in the Arabian Gulf region.
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The Egyptian economy remains fundamentally weak, with little to suggest a more pronounced recovery is yet on the cards. On the upside, domestic consumption of steel output will rise as a result of the depreciation of the Egyptian pound, which will give local producers an advantage. With long product capacity more export-oriented than flats, a resumption in construction growth in export markets will be crucial to growth in output. The country has been operating well under full capacity, with a utilisation rate under its 8.8mn tonnes per annum (mntpa) potential. Even without further capacity expansion, Egypt has the potential to grow over 30% from 2010 levels using currently operating plants. A significant threat is the surge in steelmaking capacity in Saudi Arabia, Qatar and Iran. Altogether, Middle Eastern production grew 8.7% to 13mn tonnes (mnt), a level that outpaced consumption, limiting the opportunities for exports.
In the aluminium sector, Egyptalum's output of finished and semi-finished products increased 4.9% y-o-y to just under 183,000 tonnes in 2011 while crude aluminium exports grew 24.4% to over 305,000 tonnes. The company is moving ahead with plans to increase its smelter production capacity to 400,000tpa, according to reports in 2012. A specific time frame had yet to be set out due to concerns over increases to power tariffs in Egypt. There are major concerns over the future of the Egyptian aluminium industry in the face of strong competition from new production capacity in the Gulf Co-operation Council, where producers have capacities of around 1mntpa.
Over the last quarter BMI have revised the following forecasts/views:
- We expect crude steel output growth of 3% to lift crude production to 6.7mnt in 2012. This is a downward revision from the 6.9mnt forecast in the previous quarter and reflects increasing concerns about the state of the domestic economy.
- Despite the effects of political instability in the short term, BMI still expects annual crude output to reach 11.04mnt by 2016. Although this represents a 72% increase over 2011 levels, it will be just enough to keep up with domestic requirements, which is set to over 11mnt in 2016.
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