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Wednesday, 3 August 2022

Cement producers welcome another year of production quotas — and a slow ramp up of market supply

Cement production quotas are sticking around for another year: The Egyptian Competition Authority (ECA) has heeded cement companies’ calls to leave cement production curbs in place for another year — but will allow output to rise as demand picks up, Ahmed Shireen Korayem, head of the cement division at the building materials chamber of the Federation of Egyptian Industries (FEI), told Enterprise.

Production has been capped for a year to fight the oversupply crisis: Cement production curbs were introduced in July 2021 to reduce a chronic supply glut that threatened the survival of a number of industry players. Companies have been required to cut production by at least 10.69% for the past 12 months, a measure designed to remove some of the excess supply and support prices. The cap came into effect mid-July last year and was originally intended to last for one year.

Prices have rebounded as a result: As of May, prices had risen almost 50% since the caps were introduced, according to Housing Ministry data.

The curbs will now be eased: The competition watchdog has revised upwards its demand estimates and will look to allow supply to rise by about 8% over the next 12 months, Korayem said, while declining to disclose exact figures.

INDUSTRY REAX-

A healthy surplus? Speaking to Enterprise yesterday, Lafarge Egypt CEO Jimmy Khan called it a “positive and practical” decision that should produce a slight surplus to prevent shortages. The company estimates that the decision will increase supply to 55 mn tons this year, slightly more than its 50 mn-ton demand forecast. “This surplus… will ensure that there is no shortage in cement supplies to all consuming sectors, especially national projects,” he said.

Is this the best way to solve oversupply? “It would be more appropriate for the ECA to direct companies towards exporting their surplus production, given the competitive price of the Egyptian product in foreign markets and the government’s support for freight transporting cement to African countries at a reduced cost of 80%,” Ahmed El Zeini, head of the building materials division at the Chamber of Commerce, told Enterprise.

Cement makers insist the move is good for everyone: “The approval for renewing the quota will allow the market to behave in a dynamic way governed by demand and supply and allow businesses to run in a healthy context,” Cemex Egypt and UAE CEO Carlos Emilio Gonzalez told Enterprise. Korayem agrees, telling us that increasing output in line with demand will help keep prices in check for consumers and stabilize the market.

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