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Tuesday, 9 June 2020

Five cement factories could close this year as covid-19 compounds sector’s woes

Four or five of Egypt’s two dozen cement factories could be forced to close in the coming months, as the covid-19 pandemic batters an industry already suffering from a supply glut, officials and analysts told Reuters. The economic fallout from the crisis may be the final nail in the coffin for foreign companies already struggling to pay their bills.

“The economics just don’t make sense”: Lorenz Naeger, CFO of Germany’s Heidelberg Cement, recently told the company’s annual general meeting that Egypt sales fell below expectations. Its subsidiary Suez Cement cut management salaries by 20-30% last month. “Several players are in deep distress today as most producers are generating losses at the gross and EBITDA level and balance sheets are in bad shape in some cases,” said Yousef Husseini, analyst at EFG Hermes. “The economics just don’t make sense.”

Supply glut: The nation’s production capacity is between 80-85 mn tonnes, Reuters says, but consumption fell to nearly 44 mn tons in 2019 from almost 50 mn tons in 2017. Consumption fell 3% in March and 8% in April after rising in the first two months of the year.

What can be done? Even with the government lowering energy prices, industry leaders Enterprise spoke with in April are calling for the state to bail out the industry with price controls and export quotas. “This matter is being carefully studied by officials at the ministry in full coordination with the private sector,” an unnamed Trade and Industry Ministry official told Reuters.

Background: National Cement, Tourah Cement, and El Nahda Cement all shut down their operations, either temporarily or permanently, last year, as the gap between supply and demand grew. Hikes in electricity prices from years of subsidy cuts raised production costs and earnings tanked, with only two of the seven listed companies reporting profits last year.

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