PROJECT PROFILE- Arab Alloys’ industrial complex: Last month the newly-established Arab Alloys Company announced that it will invest EGP 1 bn to build a ferroalloys industrial complex in the Suez Canal Economic Zone (SCZone). The complex will produce ferrosilicon alloys, silicon manganese and silicon metal, providing the necessary raw materials for a number of industries, namely iron and aluminum. We sat with CEO Medhat Nafei to learn more about the project and what it means for the country’s industrial sector.

In detail: The complex is set to initially produce 48k tons of ferrosilicon alloy each year but could expand down the line, considering the amount of land it has been allocated and the market demand for its products, Nafei tells us. The project will be built over a five-year period, with the first two phases to be completed by 2024, during which capacity will reach 24k tons of ferrosilicon, the product of two furnaces. The complex will be the largest of its kind in the SCZone.

Advisors: Ziad Bahaa Eldin Law Office is providing legal advice on the project while EGEC has been hired as a consultant.

About Arab Alloys: The company was founded just a few weeks ago by MMC Holding, which holds a 99% stake in the company. The company markets itself as the “first privately owned company in Africa for the production of ferroalloys.” The company tapped Nafei as its chairman earlier this summer.

Globally, the demand for ferroalloys is through the roof: The global market is looking at a major ferroalloys shortage. Demand is expected to reach 8.6 mn tons by 2050 and if current global supply remains as is — 3 mn tons — it will only cover a mere 35% of market demand, Nafei said. This gap between supply and demand represents a chance for expansion and localization, thereby reducing dependence on industrial imports and tapping international markets for export, he added.

Export agreements are already in the works: “The company is currently seeking to conclude agreements with a number of potential customers with the aim of marketing its upcoming products,” he said. For example, Kuwait’s production capacity is only 12k tons of ferroalloys per year, making it an optimal market for Egyptian exports.

The ferroalloys market is expected to see exponential growth for the next several years: The global market is on track to see an annual growth of 7.1% up until 2028, when it is expected to be worth USD 73.9 bn, according to Research and Markets. This expected growth will come on the back of increasing demand for stainless steel in industries such as automotive, construction, aerospace, and certain machinery.

We have all the necessary materials for alloy manufacturing: Raw materials required for the manufacture of alloys, including quartz and silicon, are widely available in Egypt, Nafei said, adding that current investments are going towards purifying these minerals for industry use.

So where does Arab Alloys’ project stand? The company is close to acquiring the project license from the SCZone. Arab Alloys is currently in negotiations with the Electricity Ministry regarding the energy supply for the complex, Nafei said, noting that the project is ideal for exports, sitting close to the Ain Sokhna Port and the East and West Port Said Ports.

More agreements ahead: The company will soon sign a number of agreements securing the tech to be used in the complex, Nafei told us without disclosing any further details. It has also settled on an Asian company to supply the complex’s furnaces.

Who’s paying? The EGP 1 bn project will be 70% funded through bank loans and the remaining 30% will come from the company’s shareholders, according to the initial study by Anderson Finance Consulting, Nafei said, adding that the company will soon sign a financing agreement with a banking consortium. “There is a good chance we’ll be able to secure a loan at a low interest rate seeing what the market is currently seeing from a monetary policy shift and the Financial Regulatory Authority’s efforts towards providing security for the private sector,” Nafei said.

No EGX listing on the horizon: The company will not be looking at an EGX listing to help pull funds for the project, Nafei said, pointing at unstable market conditions. The EGX suffers from a major liquidity problem that needs to be addressed, he said, adding that currently all listed companies are undervalued.

The biggest challenge to industry: Energy. Europe is currently in the throes of an energy crisis and electricity prices are seeing unprecedented highs, jumping 500% in Germany, the region’s largest industrial country.

Egypt is immune to that challenge, with a large domestic surplus of electricity, Nafei said. The best way to exploit said surplus is through investing in electricity-consuming industries such as alloys and aluminum, he suggests.

More transparency is required when it comes to electricity pricing to help investors plan their projects at least ten years ahead, which will in turn help the country profit off its current surplus of natural gas and electricity, he said. “Talks about liberalizing electricity prices have caused concern among investors,” he added. Energy prices should be based on a profit and loss calculation, allowing flexible electricity prices taking into account global prices, he recommended.

Electricity prices have been a hot topic of conversation as of late: We are expecting to see electricity prices jump as the state works to restructure electricity prices by 2025. Prices will remain unchanged through 2022 but they are bound to rise with some businesses expecting to see a small increase as the rate on the 0-250 KWh band rises 2.5% to EGP 1.23/KWh.

Arab Alloys was set up as the state pushes to localize industry: The company first and foremost aims to cover local needs and reduce ferroalloy imports, then it will look to export its products to European and North African markets, the chairman said. The project has the chance to integrate with many industries — iron, aluminum and automotive — which will raise the local component in these industries. Egypt ferroalloys import bill sits at around an annual EGP 1 bn.

Self sufficiency is a “key pillar” of economic security, Nafei told us, pointing to the war on Ukraine and what it caused from shortages and the supply chain disturbances prior to that.

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