Ezz Steel in talks to set up an industrial base in Algeria

Steel giant Ezz Steel could be lining up to build a USD 780 mn direct reduced iron facility in Algeria, according to a statement from the Algerian Investment Promotion Agency and reports from the Arabic-language press. The facility could produce as much as 2.5 mn tons of DRI each year with an annual sales value of USD 835 mn at current market prices. Ezz Steel declined to comment on a timeline or investment ticket for the project when we asked yesterday.

Why Algeria? The US effectively froze Egyptian steel out of North America’s largest market earlier this year by slapping a 29.51% countervailing duty on Egyptian rebar on top of the existing 50% rate on steel imports. A separate anti-dumping investigation into Egyptian steel production expected in May could add another 20-30% duty, leaving Egyptian producers bracing for a 100% tax wall. For several industry heavyweights, a shift to regional reconstruction projects in Libya or qualifying for EU green exports was the answer after losing one of the biggest hard currency corridors.

Uh, Enterprise? What’s DRI? Okay, we’re going to get a little bit wonky here. It’s iron ore that's been converted into a high-purity metallic form using natural gas instead of a traditional blast furnace. DRI is a key feedstock for electric arc furnace steelmaking — the route Ezz Steel already uses — and produces cleaner steel with a lower carbon footprint than steel made in a blast-furnace.

Okay, then why Algeria? Algeria is sitting on cheap, abundant natural gas (the single biggest input cost for DRI production) — and producing there could give it easier access to the EU and low-cost feedstock. It might also give it another entry-point to the US market down the road, all while preserving its ability to sell into neighboring Libya.

Look at Ezz’s move toward Algeria as a three-pronged move to de-risk and diversify its supply chain, Confluence Consultants ’ Head of Research Amandeep Ahuja tells us. “If we have learnt anything from the effective closure of the Strait of Hormuz, it is the necessity of supply chain diversification,” she adds.

The company’s entry into Algeria may not mitigate high tariff risks from the US, as both countries face heavy duties, but “it may reshuffle it if government subsidies change,” Ahuja says.

Energy and logistics

Setting up shop in Algeria also hedges against energy constraints here at home and ensures access to EU markets. Ezz Steel’s proposal focuses on natural gas-reliant DRI production, which is “likely to be replaced by green hydrogen in the future,” Ahuja tells us, adding that the transition is essential for green steel production, easy EU market access, and countering any future EU carbon tax mechanism.

The move would also sidestep any critical logistic bottlenecks. By establishing a production hub in Algeria, Ezz Steel would open a door to the country’s shipping routes to Europe, bypassing geopolitical disturbances in shipping routes on the Red Sea.