Reporting from Egypt this week suggests that the government may be finally taking action to aid the country’s beleaguered cement sector. Sources quoted by Reuters indicate that a production cut of at least 14% has been proposed. One of the cement industry sources broke it down into a 10.5% baseline reduction with a further 3.7% reduction per production line at a cement plant with an additional cut of 0.7% per year of operation. The Ministry of Trade and Industry has declined to comment on the story.
Graph 1: Cement production and capacity utilisation in Egypt. Source: Cement Division of the Building Materials Chamber of the Federation of Egyptian Industries.
Graph 1 above shows the key problem facing the sector: cement production has fallen each year since 2016. Added to this, local capacity utilisation took a knock when the 13Mt/yr government/army-run El-Arish Cement plant at Beni Suef opened in 2018. Before it opened the natural utilisation rate was around 80%. By 2020 it had sunk to 60%.
The coronavirus pandemic was another problem that the building materials market didn’t need and the last time this column covered Egypt (GCW 475), HeidelbergCement was restructuring its local subsidiaries in the country. Most producers were holding on for better days in the future but hoping for some form of government intervention such as production limits or an export subsidy programme. Meanwhile, analysts have been waiting for divestments. However, the prospect of the situation becoming worse was also present, in the guise of the Egyptian Cement Group’s new integrated 2Mt/yr plant, scheduled to open at Sohag later in 2021. Since then there’s not been much of a change until now.
Some very rough calculations by Global Cement suggest that the alleged government measures could have created an artificial utilisation rate of 78% in 2020 before the age of the plants was taken into account. For example, the El-Arish Cement plant with its six production lines would potentially see its production cut by around 33% and capped at 8.7Mt/yr. In theory a measure like this could better share out the market between the smaller producers or those with less market share. However, how this would play out with actual plant running costs or existing market share is unknown, although, as mentioned above, some of the multinational producers have been publicly calling out for these kinds of controls.
Playing around with the proposed caps could potentially create some absurd situations. For example, if a single line plant had been running for over 120 years (!) then it wouldn’t be allowed to produce any cement at all. It is lucky then that the earliest plant in the country opened in 1911 and it’s likely long gone. It’s a silly example, but the point is, if production limits do come in, there are likely to be winners and losers. The question for the local producers then is whether a system like this would be better than the current situation.
