{"id":544704,"date":"2022-03-16T04:00:15","date_gmt":"2022-03-16T04:00:15","guid":{"rendered":"https:\/\/enterpriseam.com\/egypt\/hardhats\/the-impact-of-war-how-building-material-prices-in-egypt-are-being-affected-by-the-commodity-price-shock\/"},"modified":"2022-03-16T04:00:15","modified_gmt":"2022-03-16T04:00:15","slug":"the-impact-of-war-how-building-material-prices-in-egypt-are-being-affected-by-the-commodity-price-shock","status":"publish","type":"hardhat","link":"https:\/\/enterpriseam.com\/egypt\/hardhats\/the-impact-of-war-how-building-material-prices-in-egypt-are-being-affected-by-the-commodity-price-shock\/","title":{"rendered":"The impact of war: How building material prices in Egypt are being affected by the commodity price shock"},"content":{"rendered":"

<\/a> The commodity price shock is pushing up prices of building materials in Egypt<\/strong>, with local steel and cement prices soaring since the start of the Ukraine conflict. Local manufacturers say that these price increases are necessary as they face soaring input costs, including the prices of key energy sources such as coal and pet coke. Contractors, on the other hand, are feeling the pinch, and are lobbying for government support to help them absorb the shock.<\/p>\n

The jump in global energy costs is pushing up cement prices, accounting for some 50% of the increase in cement prices<\/strong>, Beni Suef Cement CEO Farouk Moustafa tells Enterprise. Coal \u2014 the primary source of fuel used for cement production \u2014 has been rising since the beginning of the year, but began to really soar at the end of February, when the war broke out. One ton of coal was trading at around USD 240 on 25 February, jumping to USD 400 per ton on 2 March and peaking at USD 423 per ton on 9 March, according to market data<\/a>. Prices have since cooled, with a ton of coal currently priced at USD 361.<\/p>\n

Faced with these soaring energy costs, some local manufacturers decided to temporarily suspend production and rely on selling stockpiles<\/strong> in hopes of waiting out the price volatility, Arabian Cement CEO Sergio Alcantarilla tells Enterprise. But some producers who opted for this route depleted their cement stocks and are now faced with even higher input costs than when they had decided to suspend production, he says. \u201cSo it\u2019s only natural that they will transfer this higher cost to the end product.\u201d And even manufacturers who still have stocks to sell are likely going to be selling their cement at current market prices, to be able to ensure enough of a margin to cover the costs of their next coal purchase and manufacture more cement, Alcantarilla explains.<\/p>\n

How much is cement selling for now?<\/strong> Prices vary between producers, depending on when they sourced their energy, Alcantarilla said. Producers are currently selling one ton of cement at anywhere between EGP 1k and EGP 1.k, he said. Head of the Cairo Chamber of Commerce\u2019s building materials division Ahmed El Zeiny puts the price higher, telling Enterprise that cement is now selling at EGP 1.6k per ton.<\/p>\n

What\u2019s the solution?<\/strong> Local cement manufacturers want to increase their reliance on natural gas, and are looking to set their natural gas consumption at 10% of their fuel mix, Mostafa says, but the Trade and Industry Ministry has yet to make a decision on this. While relying on natural gas as a local energy source would be beneficial for manufacturers, particularly if the government supplies it at lower costs, this scenario seems far-fetched, since the energy shortage in Europe is the perfect window for Egypt to export more natural gas and increase its revenues, Alcantarilla says.<\/p>\n

Even with these higher input costs, producers aren\u2019t the sole source of the higher retail prices. <\/strong>Cement retailers have \u201csignificantly\u201d increased their margins in the past several weeks, pushing up the final cost that customers are faced with even further, according to Alcantarilla. However, he suggests that these retailers could be justified in raising retail prices if they are facing increased transport and other logistics costs.<\/p>\n

It\u2019s not just the impact of the war: The cement industry was already seeing higher end-product prices<\/strong> after production cuts were introduced in July<\/a> to ease the years-long supply glut<\/a>. In place for a year, the quotas compel market players to cut production by at least 10.7%, while additional cuts of 2.81% per production line can also be made. The decision was a lifeline for the local cement manufacturing industry, Moustafa says, and the supply\/demand balance is now looking healthier.<\/p>\n

Although that decision was critical to keep several producers from shutting down, some want to see it reversed<\/strong> in light of spiraling commodity prices. El Zeiny has submitted a request to the Consumer Protection Agency (CPA) to scrap the quotas and is taking a similar request to the Trade and Industry Ministry next week, which he says is necessary to protect the building materials sector from \u201cunwarranted\u201d price increases.<\/p>\n

Steel prices are also running red-hot:<\/strong> The war\u2019s inflationary wave is also touching steel, the price of which jumped to EGP 21k from EGP 15.5k over the course of two weeks. This rapid jump is primarily caused by a significant rise in imported scrap metal prices (to USD 650 per ton, from EGP 514 per ton), which accounts for around 60% of the cost of steel, head of the FEI\u2019s metal industries division Mohamed Hanafy tells us. Steel prices are also affected by higher shipping and freight costs, particularly in light of ongoing supply chain disruptions, Hanafy says. This issue is compounded by the shortage of raw materials, which is pushing manufacturers to import their goods from China and India (as opposed to Europe), resulting in even higher shipping and freight expenses, he explains. Pellet prices have climbed by 30% in past weeks, and are now selling at USD 910 per ton, from USD 700 per ton from 25 February.<\/p>\n

Although there are clear market dynamics to explain the price increases, El Zeiny says that there is some manipulation at play<\/strong>, telling us that there are some manufacturers who are \u201ctaking advantage\u201d of the situation and hoarding supplies. These extortionary moves are exacerbating the issue, El Zeiny said, calling for the CPA to investigate.<\/p>\n

Faced with these higher costs, contractors are trying to mitigate the impact of these higher input costs on current projects. <\/strong>Contractors are calling on the government to delay the delivery of some projects, head of the Egyptian Federation of Construction and Building Contractors Mohamed Sami Saad tells us. This will help ease the pressure off the market, allow the industry to adequately assess the situation, and give prices a chance to stabilize, he said. After meeting yesterday, the federation is calling on the government to grant lower-priority projects a three-month extension so contractors can hold off on buying materials at current prices.<\/p>\n

Contractors also want assurances that the government will pay arrears immediately<\/strong> to give them enough liquidity to cope with the rising prices, Saad said. They are also asking the government to postpone certain obligations and expenses, such as the 0.25% tithe on corporate revenues that helps fund the universal health ins. program. The union will send their recommendations to Prime Minister Madbouly, who has formed a crisis committee to combat the impact of the Russia-Ukraine war on prices.<\/p>\n

Challenges are mounting for the government: <\/strong>\u201cPut yourself in the government\u2019s position, would you buy wheat and food staples to ensure food security, or buy steel and cement?\u201d Saad says. \u201cThey are in a tough position.\u201d<\/p>\n

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