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Monday, 7 October 2019

Egypt reduces natural gas prices for three types of factories

Gov’t announces long-awaited decision to lower natgas prices for industry, but only for a few sectors: A ministerial committee lowered on Thursday the price of natural gas for the cement, metallurgy, and ceramics industries after repeated calls by manufacturers, cabinet said in a statement. The price for cement factories was slashed to USD 6 / mmBtu, down from USD 8. Metallurgy and ceramic manufacturers, meanwhile, saw their rates drop to USD 5.5 from USD 7. The committee will meet every 6 months to review the prices. Manufacturers have been pressuring the government for years to cut natural gas prices saying that it is affecting their product prices and thus sales which is causing them to work under their full production capacity.

By offsetting the recent surge in operating costs, the decision bodes well for industrial output and exports of manufactured goods, both the head of the Federation of Egyptian Industries (FEI) Mohamed Elsewedy and the export council of building materials and metallurgy industries Waleed Gamal El Din said, according to a local press report.

A small relief for steelmakers: The reduction will lower the cost of producing a tonne of steel by as much as EGP 425for long-product factories,and help resolve a dispute between long-product and rolling mills players caused by the imposition of 15% anti-dumping duties on imported steel billets, Gamal El Garhy, head of the metallurgical industries chamber at the FEI, said. Steel companies slashed prices last week amid uncertainty caused by a delay in ruling on appeals filed by the State Lawsuits Authority and long-product steel makers against the suspension of the billet tariffs.

But high steel tariffs are still needed -Pharos: “We strongly believe that the government still needs to impose a hefty tariff on billets and finished steel imports north of 42% to maintain current prices and as high as 53% to improve margins, taking into account both the natural gas price reduction and the recent cut in local steel prices,” Pharos wrote in a research note on Thursday. This is far higher than the 15% tariff on iron billets and the 25% duty on rebar that was rejected by the administrative court in July. This is because any cost savings gained by the reduced gas price will be outweighed by the drop-off in revenue caused by falling steel prices.

Cost savings for ceramics may be diluted by oversupply: The research note stated that the tile manufacturing industry may not benefit from the cost as “oversupply issues” may lead to a fall in the selling price. However, the move might improve the competitiveness of Egyptian ceramics abroad, ceramics manufacturer Alfa Ceramic Chairman Wagih Besada said.

No gains for cement: The weakened cement sector will see no cost savings as a result of the reduction as most factories use an energy mix of coal and mazut fuel oil, head of the cement division at the FEI Medhat Estafanos said. Pharos also said that South Valley Cement is the only company that will benefit, but nonetheless continue to generate negative margins.

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