The North Africa Steel Markets: Recent Developments & Their Impact On Growth Presented to: 18 th Middle East Iron & Steel Conference (Dubai, 9 th December 21) By: George Matta Ezz Steel - Egypt
The Political & Economic Scene While Egypt and Tunisia make remarkable progress in the political transition process, Libya descends into chaos. The region recorded an average GDP of 1.9% in 213, rising to 3.1% if Libya s negative GDP is discounted.. a performance close to that of world economy (3.3%). The outlooks for 21-217 remain somewhat uncertain and vary from country to country. Provided there is political and security stability, growth should be expected to speed up to 3.1% this year and.% next year. Oil Exporters Non Oil Exporters % GDP 1 9 8 7 3 2 1 9.. 1.9 3.1 212 213 21e 21f/c Source: AfDB, IMF 1
North Africa Steel Markets At 2%, capacity utilization rates are subdued Crude capacities remained flat in 21 while output is up 3% y/y to 13.8m tons (2% UR). Finished output increased % y/y to 12.1m tons which is the result of growth in Morocco (impact of SG/AD duty), relative recovery in Libya and improved UR in Algeria. Finished output in Egypt is marginally down under impact from burgeoning imports. Regional finished UR is up 2% to %. Crude Steel Output vs. Capacities m mt UR (%) 1 1. 1. 8% 13.2 13.8 1 12.2 12.2 12 8.9 % 9.1 9. 1 7.7 7.8 8.1 8 % 2% 2 % 29 21 211 212 213 21 Capacities Output UR (%) Source: MBR Finished Steel Output vs. Capacities m mt 3 21.1 22.1 23.3 2.3 2. 2 2 17.9 11.8 1 1.8 9. 1.3 11. 12.1 1 29 21 211 212 213 21 Capacities Output UR (%) UR (%) 8% % % 2% % 2
North Africa Steel Markets Despite the growth, per capita steel consumption remains way below MENA average Consumption growth in 21 is estimated at 9% y/y driven by Egyptian market recovery (accounting for nearly half of regional demand). However per capita steel consumption remains much lower than MENA average due to a large population base (219 million). Longs consumption (8% of total demand) benefit from solid economic growth in Algeria and the resumption of govt. spending on infrastructure in Egypt. Flats consumption growth (1% y/y) impacted by poor industrial performance in the region and the decline of end-use product exports. m mt 2 18 1 1 12 1 8 2 18. Source: MBR Finished Steel Consumption The impact of Arab Spring 1. 12.9 1.7 17.3 18.9 29 21 211 212 213 21 Per Capita Steel Consumption vs. Other Regions Kg 8 88 32 8 1 2 3 Eastern Med N. A MENA GCC 3
North Africa Steel Markets Imports are on the rise due to declining prices and global excess capacities Total Steel Imports (1) 213 (m mt) 21 (1) (m mt) Finished Steel Import Sources (21) () CHG y/y Longs (2).8. 1% Flats (3) 1.3 1.3 % Total Finished 7.1 7.9 11% Billet 3. 3.9 8% Total Imports () 1.7 11.8 1% $/MT Fob 1 1 82 Rebar & Billet Price Trend (1) 22 88 3 9 19 8 Billet Import Sources (21) () 18 1 91 21 211 212 213 21e Billet 213 Spread: $8 21 Spread: $27 Rebar EU % Ukraine 9% Russia 27% Others % Japan 3% Turkey 17% China 3% Ukraine 2% (1)Source: MBR (2) Include rebar & WR (3) HRC only )Source: ISSB (1 months annualized) EU 9% Turkey % Others 7%
Egypt Recent Developments: political stability.. strong market growth.. SG imposed New president/government restores political stability. Economic stimulus package launched (value: $.2 bn). Rebounding steel market with strong growth y/y. Safeguard tariff imposed as imports reach a year high. GDP % 3. 3.8 3.9 3 2.2 2 2.1 1 213 21 21 21 217 Source: AfDB Steel production down due to loss of market share to imports. Energy and fuel costs soar as the government moves to curtail subsidies and reduce budget deficit. commissioning of new DRI projects delayed due to gas supply issues. % 7 3 2 1 Economic Sectors Growth (213 / 21).3....8. 3.2 3.2 3 3.1 2.3 Cheap Chinese imports penetrate Egyptian market with substantial price differentials below market prices. 213 21 Source: Egyptian Ministry of Planning
Egypt Steel Markets Investment spending leads to strong Consumption growth Large housing and infrastructure projects create strong demand for longs (up 11% y/y). Flats consumption lingers due to weak industrial base and sluggish export markets for end use products (-2% y/y). Growth will be supported by fresh FDI s and increased govt. spending in the housing, transportation, waste water and energy sectors. Total finished steel consumption is f/c to grow by.3% average p.a through 217 vs. -1.2% in the 21-213 period. m mt Total Finished Steel Consumption 12 1 8 8.3.8 CAGR -1.2% 8.1 8. 8.9 9.3 9.8 1. 2 1 Source: Ezz Steel estimates 11 12 13 1 1 1 17
Egypt Steel Markets New investments in steel making will add.m tons to crude output by 217 Crude output declined 7% this year due to gas outage but will rise sharply with the commissioning of new DRI capacities (.m tpy) next year. Rebar production came under pressure from surging imports but will rebound with the imposition of SG duty. Total finished output declined 3.% y/y to 8.1m mt. Finished capacity utilization rate, though down to 2%, will recover to 8%-72% in 21-217. m mt 12 11 1 9 8 7.7...8.3 8. 9. 1.9 21 211 212 213 21 21 21 217 Source: Ezz Steel estimates Crude Steel Output m mt 11 1 9 8 7 Finished Steel Output 1. CAGR.% 1. 9.3 8.2 8.2 8. 8.1 7.3 21 211 212 213 21 21 21 217 7
Egypt Steel Market Soaring imports lead to SG imposition Imports more than doubled to 1.m tons in 21. To stem the tide of rebar import volumes the govt. levied 7.3% SG duty in October, targeting Turkish, Ukrainian and Chinese imports. The price differential between the cost of rebar imports and local selling prices reached $ this year resulting in 8% share loss for local producers. Exports dropped substantially due to price competition from Chinese products and weak demand in the target markets. Import Source EGP./MT Import Costs vs. Local Selling Prices Ukraine 38% China 12% Others 1% Turkey China Ukraine Others Source: Ezz Steel database(11 months annualized) Turkey 9% SG SG 2 8 Q1 13 Q2 Q3 Q Q1 1 Q2 Q3 Q Avg. Mill Price Turkish Ukrainian Chinese 8
Egypt Steel Market SG will reduce imports S.O.M. & lead to increased output while Chinese shipments continue unabated Impact of Safeguard Rebar imports will drop to one third of current volumes. Chinese imports will absorb the SG and replace Turkish & Ukrainian material due to their very low prices. Imports S.O.M. will drop from 12% in 21 to % in 21-217. Domestic output will rise by nearly a million tons as utilization rates increase from 2% to 8%. The Egyptian steel industry returns to profitability and improves its efficiency and competitiveness. MT 12 1 8 2 98 F/C Rebar Imports 3 32 3 21 21 21 217 Source: Ezz Steel estimates 1.2 1.8...2 9 m mt 1 12 1 8 Rebar Capacity Utilization Rate 21 21 21 217 UR (%) % % % % Capacity Output UR (%)
Algeria Stable political & economic environments Political stability drives solid economic performance with 3% GDP growth (213). Growth is driven by private demand and investment by public enterprises. Solid external position despite falling exports and rising imports: External debt as low as 1.% of GDP. Foreign reserves solid at @ $19 bn. % 3 2 1 GDP 3.8. 3.8 3.9 3. 213 21 21 21 217 Inflation fell from 8.9% to 3.3%. Unemployment standing at 9.8%. This year oil and gas are set to recover, public expenditure set to rise 11.3% to support domestic demand. Growth f/c @ 3.8% (21) and % (21). Source: AfDP 1
Algeria Steel Market Consistent demand growth.. but consumption is highly dependent on imports Demand: Plans are in place to build up to 1m housing units over a -Year period. In addition, the govt. has an infrastructure expenditure of $3 bn p.a. to be spent on developing the transport roads, water resources, health and agricultural sectors. Though down on 213, steel consumption growth this year is strong (9.%) driven by robust demand for rebar (83% of consumption) on the back of housing and infrastructure spending. Supply: Current LP output (1m tpy) accounts for less than 2% of consumption with the remainder imported. Total steel imports will continue to rise through 217 and until the new Bellara Steel is commissioned in 218 (2.m mtpy capacity). Total capacity will reach m tons by 218, including 3.2m tons LP. m mt 8 7 3 2 1 Finished Steel Output vs. Consumption 3.1. 3.8.....8.2 1.2.7 7.1 7. 1. 1.7 1.9 21 211 212 213 21 21 21 217 Consumption Output m mt 3 2 1 Source: MBR Imports & Exports 21 211 212 213 21 21 21 217 Imports Exports 11
Morocco Reaping the benefits of political and economic reform Overall, Morocco s performance has been encouraging and benefited from a context of political and social stability. The Moroccan economy proved resilient in 213 with a growth rate of.7%, buttressed mainly by domestic consumption and public investment, but also by a good agricultural year. % 3 2 GDP.7..3.7 3. 213 21 21 21 217 The reforms that have been underway for several years in favour of the private sector were strengthened in 213 by a fiscal reform and the continuation of the reform of the compensation fund which represents a key step in reducing public spending. A cautious monetary policy held inflation at 1.9% and the current account deficit at 7.2% of GDP, compared to 1% in 212. New industries, such as aeronautics and automobiles, are now drivers of growth and areas of innovation for the Moroccan economy. These areas can help Morocco overcome the difficulties encountered by certain traditional sectors such as textiles. Source: IMF 12
Morocco Steel Market Consistent growth in output as SG/AD duties are imposed Demand: An annual plan for building 2K social housing unit p.a. and upgrading the infrastructure for 21 African Nations Soccer are generating demand for steel. This will push consumption growth to 11.8% y/y next year. Growth will average 7% p.a. in 21-217. Supply: Finished output benefited from AD measures in place, increasing 1% y/y to 1.2m tons. Yet capacity utilization rates remain low at %. Imports: A SG duty of 9 is imposed on all LP imports in excess of an annual quota 127K MT, effective since 2/213. AD duty also levied on HRC imports from EU and Turkey for years starting Aug. 21. The applicable duty ranges from 11% and 22%. Total imports as a result are down 21% y/y to K MT. m mt 2. 1. 1.. Finished Steel Output vs. Consumption 1. 1.3 1. 1. 1. 1.2 1.2 1.1 1. 1. 1. 1.3 1.7 1. 1.8 1. 21 211 212 213 21 21 21 217 Consumption Output MT 3 2 1 Source: MBR Imports & Exports 21 211 212 213 21 21 21 217 Imports Exports 13
Libya Violence leads to further deterioration this year Disruptions to oil production caused by factional violence led to a steep economic downturn with GDP shrinking by a further 2% (f/c) in 21 on top of the 13% decline in 213. Budget deficit expected in excess of % of GDP, pushing official reserves down by 22%. GDP % 3 2 1. 18.3 1 12.8-1 213 21 21 21 217-2 -12.1-3 -19.8 Source: AfDB However, the situation now is marginally better than H1 as the year long blockade of oil facilies by federalist militias has allowed oil production to rise to 8K bpd from a low of 2K bpd in June. Exports resumed in most terminals. Barring further political instability with oil output remaining at the current level, growth in 21 could exceed 1% of GDP reducing fiscal deficit to 3%. 1
Libya Steel Market Demand & supply may stabilize next year.. assuming the political situation does not get worse Demand drivers are limited to govt. projects in the absence of domestic security stability and restricted private sector activity. However, there has been some demand for reconstruction carried out that has supported steel consumption. Relative increase in consumption is expected this year @.3% y/y, slowing to % average growth p.a. over 21-217. With limited domestic supply, balance will be met by imports from Turkey, CIS & Southern Europe. Though improved from last year, exports will remain subdued and limited only to HRC. Finished Steel Output vs. Consumption m mt 2. 1.7 1.7 1.7 1. 1. 1. 1. 1.3 1.3 1.3 1.1 1. 1..8.9...3.1. 21 211 212 213 21 21 21 217 Consumption Output m mt.8...2. Imports & Exports 21 211 212 213 21 21 21 217 Imports Exports Source: MBR 1
Tunisia Moving toward stability The legislative and presidential elections (underway) are reducing political uncertainty and strengthening investor confidence. Yet economic challenges remain: timid growth, rising external imbalances, and high unemployment. GDP %. 3.7. 2.8 3 2. 2 1 213 21 21 21 217 Source: AfDB Growth is expected to reach 2.8% this year driven by some acceleration in manufacturing and services activity, rising to 3.7% next year. Risks: spillovers from the Libya crisis, slower growth in European trading partners and higher commodity prices which would further slow economic activity. 1
Tunisia Steel Market Accelerated growth after hitting the bottom in 212/213 Solid consumption growth in 21 after 2 years of consistent decline, supported by the return of business confidence and capital investment. Demand will rise gradually in tandem with progress in the political transformation process with average growth 7% p.a. in 21-217. Output will grow at a slower rate than demand owing to deep imports (2% of consumption). MT 12 1 8 2 Finished Steel Output vs. Consumption 92 73 87 82 77 8 7 387 39 372 2 1 21 211 212 213 21 21 21 217 Imports & Exports MT 3 2 1 21 211 212 213 21 21 21 217 Source: MBR Consumption Output Imports Exports 17
North Africa Capacity Additions (21 217) MT Crude Capacity Will Increase Million Tons Country Finished Capacity Long Flat Total DRI Crude Egypt 1,7-1,7,,9 Algeria 2-2 - - Total Expansions 1,9-1,9,,9 Current Capacity 18,7,18 2,2,7 1,9 Total Capacity by 217 19,97,18 2,1 1,3 19,91 18
Market Forecasts ( 21-217 ) MT 21 21 21 217 CAGR Finished Consumption Egypt 8918 933 98 138.2% Algeria,173,8 7,7 7,393.2% Libya 1,21 1,1 1,719 1,739.% Morocco 1,2 1,12 1,89 1,7.7% Tunisia 7 77 82 87 7.% Sudan 173 199 219 2 12.1% Total Finished Consumption 18,932 2,2 21,329 22,38.7% y/y Growth 8.2% 7.%.3%.% - Finished output 12,9 13,9 1,998 1,88 9.% Balance (Net Imports),837,289,33, -1.% Billet Imports 3,8 2,7 2,2 1,8-22.3% Source: MBR, Ezz Steel estimates 19
Key Challenges/Downside Risks The destabilizing effect of continued violence in Libya, especially on Egypt and Tunisia. The dismally low level of capacity utilization rates as domestic producers lose market shares to surging imports. Competition from cheap Chinese imports that suppress prices and domestic producers profitabilities. Gas availability and prices required for the efficient operation of the DRI projects in Egypt. The protracted economic slowdown in the European markets targeted for North African exports. The crashing of oil prices will curtail revenues for the oil exporting countries of Algeria and Libya and subsequently their expenditures on development projects. 2
Key Messages North Africa is the largest importer of both finished and semi finished steel in the MENA region with finished imports accounting for 1% of consumption. The narrowing spread between billet and rebar import prices is driving rebar imports up 13% y/y (to.m tons) at the expense of domestic output. Consequently, capacity utilization rates are depressed at % (vs. 7% in GCC). Cheap imports from Turkey, Ukraine and China have given rise to protectionist measures in the main steel producing countries of Egypt and Morocco (which imposed SG and AD duties). The commissioning of new DRI projects next year will raise crude output and increase capacity utilization rates in N.A. from 2% now to 71% in 217. As a result, billet imports will decline by 3%, from 3.8m tons to 2.m tons. Despite the deterioration in Libya s situation, North Africa s steel consumption is showing strong sings of recovery. And with political transformations completed in Egypt and Tunisia sometime next year, consumption is f/c to grow at an average.7% p.a., reaching 22. mt by 217 from 18.9 mt now. 21
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