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Egypt has to learn from other countries' experience in solving cement crisis and it’s not export based: Suez Cement - Daily News Egypt

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Egypt has to learn from other countries’ experience in solving cement crisis and it’s not export based: Suez Cement

Cost of production increased by about 11% after the fuel price hikes, says managing director

Suez Cement Company imported around EGP 600m worth coal during the first half (H1) of the current year, according to José Maria Magrina, managing director at Suez Cement.

Jose Maria said Egypt’s cement industry is going through its worst crisis ever as there is a decrease in demand by 5% y-o-y since 2016 and a huge increase in supply. The ratio of demand to supply is 50%.

Daily News Egypt sat down with Jose Maria to learn more about the crisis of cement industry in Egypt. The interview’s transcript is below, lightly edited for clarity:

How do you see the cement industry in Egypt in the current period?

It is going through its worst crisis ever. We have closed Tourah Cement plant temporarily and the National Cement Company was liquidated. There are 5 or 6 other players at risk of bankruptcy. Additionally, there is a decrease in demand by 5% y-o-y since 2016 and a huge increase in supply. The ratio of demand to supply is 50%.

Does the current cement industry situation encourage companies to integrate or merge to overcome the crisis?

I do not think so because integration will solve nothing. Integration can only decrease the company’s administrative expenses but production remains the same. I believe that international players are not willing at all now to invest or to acquire another company as they have to compete with the government which has different rules of the game. Local players think the same, why would; they expand in the current market circumstances?

I do not think that we will be seeing any foreign direct investment (FDI) in the sector. Any new or old investor will understand that it with this overcapacity it makes no sense to invest and will stay away.

What is the value of the company’s total assets?

The company’s total assets are valued $500m-600m.

In your opinion, what is the solution to this crisis?

We held many meetings with the government to explain how other countries dealt with such problems. For example, China rationalized production and controlled the market to keep demand and supply in balance. Other countries did the same or increased the consumption, however, increasing consumption is very difficult because the consumption is already high in Egypt, recording more than 500 kilos of cement per person.

Do you think this industry needs more subsidies? And how do you see the government’s new proposal to provide cement export subsidy program?

Providing subsidies is good, but I do not think it’s the solution. Competition is so high that producers will discount immediately the subsidies and prices will drop even further. With this competition subsidies will not then help the producers or our customers. It will only benefit the real estate companies that will buy cement even cheaper while maintaining their housing unit prices expensive. In short, any subsidy will  be cashed by the real estate companies.

Also, export subsidies is not the solution because the difference in cost between us and our regional competitors is too big. Furthermore, the amount of excess of capacity is so big that we would never be able to find export markets for such quantity. As an example , to support cement export we would need a subsidy of around USD 12/ton. This will eat all subsidies available for all industries.

Cement industry only exports opportunistically. Cement is a heavy item, with relatively low cost per unit but a high transportation cost. No country in the world bases its cement industry in exports.

What is the total value of the company’s import of coal? And do you plan to decrease your imports due to the current market circumstances?

Our imports of coal reached around EGP 600m during the first half (H1) of the current year. We import only what we need. Our market share is 14% and we will decrease coal imports by 5% in H2 of 2019.

José Maria Magrina, Managing Director at Suez Cement

What are the main countries you import from?

We import coal mainly from the US and Russia.

You have a contract with the Egyptian Refining Co (ERC) to supply your company with petroleum coke (pet coke), how much did your company save in energy cost after signing the contract?

We have saved 50% of logistics cost because we now get what we need only, so we do not need many stores like we used to do.

Has your company been affected by energy price hike?

Our business has been affected by about 11% due to high cost of electricity. For us, energy (fuel and electricity) accounts for 60% of the total production costs.

Do you have new products you plan to launch in the coming period?

We always release new products through using advanced technology, for example, we are supplying cement to some projects in New El-Alamein and New Capital where advanced constructions methods are applied.

Do you plan to expand your exports?

Our export production cost is high, including transportation and logistics. However, we export to Libya and Ghana very small quantities but our production cost is high, so it is difficult to compete with other international companies.

What is your company’s total capacity of production?

Our total capacity of production is 12m tons and we sell only around 7m tons.

How do the current circumstances in the cement sector affect your business?

We have decreased our employees from 3,800 to only 1,500.

What are the updates regarding the Tourah land auction?

There was an auction and the winner did not pay the first installment of the value of the land so the auction was cancelled.

Then, we talked with the government to change the land activity from industrial to administrative but the government refused our request. It’s incomprehensible that they refused it since that area is a perfect place for housing and support facilities like schools, supermarkets and other commercial activity. It could generate a lot of new jobs and improve the area.

Anyhow, we are currently preparing the master plan for the land to resubmit to the government to develop school, mall, administrative buildings, and residential units.

How will the interest rate cut decrease your expenses?

I think that 17% interest rate is too high to invest. It’s supposed to be about 11-12% to encourage people to invest and expand. We have about EGP 1bn loans and the interests on our loans are estimated at approximately EGP 10m.   

What is the fair price for cement?

Cement is the only commodity that has now the same price (excluding taxes) as in 2015. All input costs have more than doubled and similar products like have doubled. The current price of cement is unsustainable, price should at least cover our costs!

How do launching new cities increase your sales?

Launching new mega projects increased our sales by 30% as these new projects need good infrastructure, more roads, and more houses. We supply mainly the New Capital project.

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