Tuesday, 6 July 2021

Cement industry is finally getting a lifeline

Is the government finally stepping in to rescue the cement industry? Cement producers were given the greenlight to cut production by at least 10% by the Egyptian Competition Authority (ECA), according to documents seen by Reuters. The new quotas, which will take effect on 15 July and extend for one year, set a 10.69% baseline cut. They also give additional room for cuts of 2.81% per production line and more for older factories, the newswire noted. The proposal had reportedly been submitted by 23 industry players to reduce the supply glut that is crippling their business. Reuters first reported in May that the government was working on a plan to save the industry based on recommendations from cement companies.

These are actually caps on domestic sales, industry leaders tell us: While Reuters is suggesting that the decision slashes production, Suez Cement’s CEO Jose Maria Magrina told us that these are, in effect, caps on how much an individual cement maker can sell on the local market. This would help smaller manufacturers, who will get a higher ceiling, to stay afloat, and prevent larger players from getting huge cost advantages, Magrina said.

Cement players are happy: “It is a step in the right direction. The government has shown foresight, because supply is [currently] much more than demand,” says Magrina. Medhat Stefanos, who heads the Federation of Egyptian Industries’ cement division, tells us that industry overwhelmingly welcomes the news.

Magrina, however, noted that there’s still room for additional cuts. He also noted that the Industrial Development Authority worked with the ECA on the decree.

Producers have yet to be officially notified of the new quotas as of dispatch time, Stepfanos tells us. A press conference to announce more details on the rules is expected to take place 24 hours after the FEI gets a formal notice, Stefanos added.

Cement has been flooding the market for years: Sales are less than half of the sector’s annual capacity, which has surged to 85-87 mn tonnes in the past three years, and actual production well exceeds consumption. Making matters worse was the new military-owned Beni Suef plant that came online a couple of years ago, which added another 13 mn tonnes of cement to the market every year. Cement factories have lost bns in recent years due to oversupply, one industry insider recently told us.

Demand fell further last year: Annual sales declined to 41.7 mn tonnes last year from 43.8 mn in 2019, on account of the lockdown.

Want to know more about the struggling cement industry, and whether production cuts are the solution? We’ve got you covered with a recent Hardhat feature.

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