Egyptian rebar demand has recovered following a weak second quarter, rising 15% on-year and 35% on-quarter in Q3, but the delayed natural gas price reduction for steelmakers is unlikely to materialize, according to EFG Hermes.
Natural gas pricing and foreign exchange (FX) availability remain “pivotal” factors to the performance of Egyptian steelmakers, the investment bank says in a note seen by Kallanish, the sister publication of Kallanish Energy.
“We remain sceptical that (the gas price reduction) would occur,” it continues. “As for FX, Egypt continues to suffer from a lack of availability, which is holding back steel raw material imports, but has also kept finished steel imports at bay and allowed local players to pass on EGP devaluation, despite taking a hit on outstanding FX debt.”
The Egyptian government announced last March it would reduce the natural gas tariff for the steel industry to $4.5/million BTU from $7/m BTU. Following months of inaction, market participants had anticipated the reduction to finally materialize in September, but it was not to be.
Ezz Steel’s performance was “resilient” in Q2 despite the weak demand, EFG Hermes says. Shipments and revenue each declined 19% on-quarter, with revenue dropping 20% under EFG Hermes’ forecasts. Ezz’s Q2 net loss of EGP 240 million ($27m) was much lower than the forecast of EGP 153m.
The lower-than-expected Q2 results were down to an FX loss of EGP 187m, which the bank had not accounted for, and an increase in net interest charges following a recent hike in interest rates.
In the first half of 2016, Ezz Steel’s shipment fell 3% on-year to 2.04 million tonnes due to a 15% slump in hot rolled coil sales. Net loss deepened 41% on-year in H1 to EGP 616.3m.
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