Egyptian steel pushes ahead with growth but new plants delayed

5 November 2015

Egyptian Steel says it is pushing ahead with plans to quadruple its capacity despite long-standing currency and energy crises, with trial production at one new plant starting in December but another project at Ain Soukhna delayed until late next year.

Heavy industry has faced the brunt of an energy shortage in Egypt, with many firms forced to reduce output due to lack of gas supply. Capital restrictions introduced in February to crush a black market in dollars have also caused problems, with firms struggling to open letters of credit to import raw materials.

"In light of the situation this year which had many challenges, we were able to succeed to a great extent in achieving two projects. One is complete and the other is almost there," Egyptian Steel Chairman Ahmed Abou Hashima said in an interview at the Reuters Middle East Investment Summit.

Egyptian Steel currently produces 800,000 tonnes of steel per year from its two plants in Alexandria and Port Said. It is looking to raise its total capacity to 3.5 million tonnes after launching its two new plants in Ain Soukhna and Bani Soueif.

The Ain Soukhna plant, with a capacity of 1.36 million tonnes, was due to be online by mid-2016 but may now be delayed to the second half of the year, he said.

The Bani Soueif plant, with the same capacity, was initially scheduled to begin producing in July or August this year. It is now set to begin trial production in December.

Abu Hashima said that while the market for steel was expected to grow this year due to rising demand, production at many firms was interrupted due to the dollar shortage.

"There is growth and high demand for steel. There are many huge projects underway and this situation will continue," he said, adding that the firm had achieved its sales target for the year and has no inventory on the ground.

Unlike longer-established competitors, Egyptian Steel, which was established in 2010, uses advanced energy-saving technology, affording it a level of immunity from the severe energy shortages that have hit many other industrial firms.

Abu Hashima said his plants use 75-80 megawatts of electricity a year, significantly less than traditional plants of the same size which use around 400 megawatts.

Natural gas usage at his plants is around 10 million cubic meters a year, compared with competitors in Egypt that use 800 billion cubic meters, he said.

The steel firm had also opened letters of credit with banks to cover its import needs so was not heavily affected by currency controls that have paralyzed some manufacturers.

“The problem with steel as a whole is that around 90 percent of its input material and the machines for it are made abroad and must be imported... These input materials require a lot of dollars for import," Abou Hashima said.

A joint venture between Egyptian and Qatari investors with a capital of 2.3 billion Egyptian pounds, Egyptian Steel is looking to launch an initial public offering within five years.

The firm had said last year it intended to launch an IPO in 2015 but Abou Hashima said that it would be better to wait.

"We are ready for an IPO at any time but the timing differs. All the plants must be operating and there must be two years of profits (after that)," Abou Hashima said.

"It can be done before but... the longer you wait, the higher the valuation will be so we want to enter the market the right way... For sure before 2020."