Hassan Nouh, Managing Director, Ezz Steel: Interview

Interview: Hassan Nouh

What are the most significant drivers of demand in the Egyptian steel market?

HASSAN NOUH: Large construction projects are the main drivers of demand in the Egyptian steel market, and the presence of these projects is a direct result of economic growth. In 2016 Egypt experienced GDP growth of 4.2%, and the expectation is that this growth will last. Important measures are being undertaken to make the economy ready for the future. The value-added tax, for example, was approved in August 2016. Taxes were raised from 8% to 13%, and the price increases to the customer seem to have been accepted by the market. The growth in GDP, legal reforms and the recent agreements with the IMF will allow the country to continue with its mega-projects. First, we saw the expansion of the Suez Canal followed by an improvement in Egypt’s power supply. The mega-projects are still going on and boosting the steel industry. The local market, among others, has consumed all steel production for its long products, and this demand is expected to grow further.

A future driver of demand might come from the broader region, especially Africa. Interest from steel companies to explore these markets is supported by the government. The real hurdle to exporting to Africa is freight, as it is not well developed. The flow of products normally goes from north to south, so all the boats are arriving full and returning empty.

How is the steel industry coping with rising prices for electricity and natural gas?

NOUH: Energy is a key factor for the steel industry and is also the main problem for the sector right now. Egypt’s steel industry is a major part of its economy and must be competitive. The steel industries are, therefore, currently negotiating with the government over the price of natural gas being supplied to them, as the steel industry is a heavy user of natural gas and electricity. The problem for steel companies is way more pressing than for the cement sector. The latter has alternatives, such as energy coming from waste and coal. For the steel industry, it must be natural gas and electricity, as this is specific to the nature of the process itself. During the summer steel companies were forced to stop production for around four to five hours on a daily basis.

Thanks to the efforts made over the last few years, the government has been shifting focus and putting emphasis on the availability of energy to the steel sector. While Egypt needs to import its natural gas to fill the gap between demand and supply, the problem will remain. However, the findings in the Mediterranean, such as the promising Zohr Field, are expected to change this situation within a year from now.

What is the single biggest challenge facing Egypt’s construction sector?

NOUH: The availability of natural gas and acceptable prices for electricity are the most important challenges to the competitiveness of the construction industry. However, there are several challenges that need to be addressed properly. One of these issues is the import of cheap steel from countries such as China. It negatively impacts the position of Egyptian steel producers locally, because China and other countries have been dumping cheap products into the market. They have increased the incoming materials almost five times. There have been safeguards put in place to limit the availability of imported steel, certainly in dumping cases, but they still could not prevent it from happening.

Currently, the steel sector, together with the government, is preparing a new petition aimed at countries that have been dumping their materials in our market. Other challenges that needs to be addressed and managed are the small to medium-sized construction projects under way in the private sector. Mega-projects keep the demand strong, but the most significant hurdle in other segments is the availability of liquidity and financing, so Egypt needs a developed mortgage system to help boost the construction sector further.