The North Africa Steel Markets: Retrospect & Prospect Presented to: 19 th Middle East Iron & Steel Conference (Dubai, 16 th December 15) By: George Matta Ezz Steel - Egypt
Regional Economic Overview Despite the armed conflict and declining oil & gas prices the region has returned to positive growth Economic performance recovered this year with GDP f/c @ 1.% vs. -.7% last year. The N.A. countries have had divergent trends over the past year: - In Egypt & Morocco, growth is accelerating to -5%, reflecting pick-up in investment in Egypt and strong harvest in Morocco. - Growth is more subdued in war-torn Libya and terrorized Tunisia. - In Algeria slowdown is noted under impact from declining oil & gas prices and reduced govt. spending. Strong recovery is expected from 17 led by Egypt s economic revival. 5. 15. 5. -5. -15.. Regional GDP F/C..6 5. 5.6 6. 1. -. 11 1 1 1 15 e 16 17 18 19 -.7-1.8 1
Regional Steel Making Crude capacity amounts to 15.7 (19% of MENA s capacity).. 9.7. 1.
Key Steel Producers 1 producers account for 66% of existing finished steel capacity 1.5m Ezz Steel is the largest steel producer in Flat Products N.A. with total finished capacity 6.9.6m.7m Long Products 1.5m 1.7m Libya Tunisia Morroco Algeria Egypt Lisco El Fouladh Sidenor Maghreb Steel Sonasid ArcelorMittal Tosyali Ezz Steel Solb Misr Group Beshay Group Egyptian Steel Hadisolb
Steel Consumption Growth N.A. is the fastest growing region in MENA with low per capita steel consumption 75 7 65 6 55 5 5 5 MENA M.E. Compounded Annual Growth Rate (CAGR) 5 5 1 1 15 N.A..% 7.6% 5.% M.E. 6% 6.7%.% MENA 18% 7%.1% Per Capita Steel Consumption (kg) (*) 5 15 1 N.A. N.A. MENA 11 16 5 5 1 15 M.E. 19 5 1 15 5 Source: MBR, EIU (*) Based on 18m population
Regional finished steel Import Growth Imports continue to grow due to production shortfall Imports 15 Sources Of Supply 1 9 8 7.9 8.5 9. 9.7 Russia % Turkey 1% Ukraine 6% 7 6 5 6. 5.9 China 1% 1 1 11 1 1 1 15 EU 56% Others 7% FP LP Source: ISSB 5
Egypt
Egypt: Recent Political & Economic Developments Political stability & economic recovery continued from 1 Parliamentary elections concluded in December, the last step in political transition. Greater political stability with significant improvement in security. Sharm El Sheikh Economic Development Conference gathered huge investment pledges, notably in the energy sector. GDP recovered to.% (.% in 1) A parallel Suez Canal was opened, contributing to increased revenue from the waterway. Discovery of a major gas deposit will improve Egypt s energy position. The Egyptian pound lost 1% of its value in 15, abetting inflation (est. @11%). The energy crisis intensified, negatively impacting industrial output and exports. Rising import bill and shortage of dollars resulted in constraints on the importation of finished goods and raw material. % 5 1...5 1.8..1. 11 1 1 1 15 16 17 Source: IMF GDP F/C EGP/$ 8. 8. 8 7.8 7.8 7.8 7.6 7.61 7.6 7. 7. 7.15 7 Dec 1 Mar 15 Jun15 Sep 15 Dec 15 Source: Central Bank of Egypt EGP Exchange Rate vs. U.S. $ 6
Egypt: Steel Developments While capacities increased output declined owing to energy shortage Steel-intensive projects in the infrastructure sector maintain strong finished steel consumption growth at 11% y/y (reaching 1.1mmt) Finished steel Capacities increased 1.m tpy. Total finished capacities now amount to 15m tpy. 16 1 1 1 8 6 8. 8. Capacities 1.6 1.6 1.6 1.7 1.5 9.7 9.7 1.1 11 1 1 1 15 Crude Steel Finished Steel Two new DRI projects commissioned this year (.9M tpy combined capacity). With total DRI capacities amounting to 8.6m tpy Egypt now is the rd largest DRI producer worldwide (after India & Iran). Insufficient gas availability pushed crude output down 1% to 5.6. Finished output also down 1% to 7.5. Output 9 8 7.6 7.8 7.8 7.6 7.5 7 6.5 6.6 6.8 6.5 6 5.6 5 11 1 1 1 15 est. Crude Steel Finished Steel Source: Ezz Steel estimates 7
Egypt: Steel Developments (cont d) Exports down.. imports up.. SG duty imposed Egypt imposed 8% SG duty on rebar imports in April. Yet, imports surged % y/y in 15 to 1.m tons. Gas shortage triggered curtailment of HRC output by 1% to the benefit of imports (up 9% y/y). Net Trade 1 11 1 1 1 15 Imports Exports Source: Ezz Steel estimates Net imports.6 in 15 Finished steel exports declined sharply (by %) owing to the crashing of int l export prices and fierce competition with global exporters. Billet imports rose 9% year-on-year to., replacing locally produced billet due to substantial cost saving. 8
Egypt: Domestic Steel Production Trend Static growth in the last 5 years due to political disruption, surging imports & gas shortage 9 8 7 6. 6.8 7.1 7.1 6.8 8. CAGR % 7.6 7.8 7.8 7.6 7.5 6 5.7.8 5. 5. 1 5 6 7 8 9 1 11 1 1 1 15 Main Players (15) Producers maintained their output levels during 1/1 despite of the unstable political Others 1% Egyptian Steel 5% environment and market disruption. Production fell in 1/15 owing to rising imports and Beshay Steel 1% irregular gas and electricity supply. Source: Ezz Steel estimates Solb Misr Group 17% Ezz Steel 5% 9
Thousands Egypt: Imports Imports surged due to slumping prices and supply glut in the global market Finished Steel Imports Billet Imports 1 1. Imports doubled in the last two years 1.8 1...9 1 Billet imports are rising steadily 1. 1.6.6.1. 11 1 1 1 15 KSA 1% Russia 11% Turkey 1% 11 1 1 1 15 15 Sources Of Supply 15 Sources Of Supply Others 1% Russia % Others 9% Source: ISSB China % Ukraine 16% Ukraine 6% 1
Steel Consumption Outlook (16-) Forecast growth rates will surpass historical levels due to emphasis on infrastructure investment Apparent Steel Consumption (Total Finished) Actual F/C 18 16 1 1 1 8 6 15.6 1.7 1.7 1.7 11. 1.1 8.7 9.1 7.7 8. 11 1 1 1 15 16 17 18 19 (est.) Consumption this year is expected to reach the peak level achieved in 9 (1.1m tons) Source: Ezz Steel estimates 11
Egypt: Demand Drivers Through Projects valued at $177bn were announced at Sharm El Sheikh Economic Development Conference ($Billion) Construction Investments New Administrative Capital, North Coast development projects, October City Oasis, residential centers in New Cairo & other real estate projects in Cairo, Delta & Upper Egypt 15 Electricity Investments Construction of 1 power plants to produce GW, upgrading existing grids and establishing electric connection between Egypt & KSA Oil & Gas Primarily BP s and Eni s exploration contracts in the Mediterranean Sea and the Delta 1. Transport & logistics Building a logistics center in Damietta (grain silos), Suez Canal development projects, upgrading railcars and tracks 8. Other Investments Sahrm El Sheikh airport expansion, construction of 1 new industrial centers 1.1 Total 177.5 11 1
Demand Drivers Through Data indicates increasing housing shortage over time s 1 Dwelling Units Built (Supply) vs. Marriages/HH Formations (Demand) 8 6 Housing Shortage 1985 1987 1989 1991 199 1995 1997 1999 1 5 7 9 11 1 Dwelling Units Built No. of Marriages s Period Supply Demand Apparent Shortage 85 9 961 171 9 95 77 15 1675 95 78 6 1866 5 785 58 1795 5 11 678 7 11 1 97 79 Total 16 15919 1178 Source: CAPMAS (Govt. Statistics Agency) The shortage is estimated to be half of this number after accounting for illegal housing construction 1
Egypt: Challenges Facing The Steel Industry The industry is adjusting itself in very difficult conditions High cost and shortage of energy 1 Exchange rate volatility Challenges Facing The Steel Industry in Slowing demand in export markets Egypt Price pressure from cheap imports Despite the challenges, the industry continues its production operations to meet the growing demand of the domestic market 1
Algeria Deteriorating macroeconomic balances due to low oil & gas prices Political & Economic Developments: Amid political upheavals and security risks in neighboring countries, Algeria maintained stability through minimal reform and public expenditure. The fall in oil & gas prices has reduced govt. revenues, widening current fiscal and current acct. deficits to 17.7% and 11.5% of GDP, respectively. Despite the drop in oil revenues, the govt. is maintaining spending commitments, notably on salaries and subsidies. High foreign reserves enable the govt. to reduce inflation from currency depreciation and support import activity. % 15 GDP.8.8.8.6 F/C.9.9 11 1 1 1 15 16 17 Fiscal Deficit 17.7 Outlook: Deeper cuts in 16/17 spending expected by delaying some large scale infrastructure projects. Growth should rise in 16 (to.9%) but reserves will continue to decline from to 19 months of imports. 1.5 5 -. -5 11 1 1 1 15-1 -5.9-9.9 Source: IMF 15
Algeria (cont d) Steel Consumption growth reversed on reduced govt. spending Steel Developments: Consumption has shrunk (by 7.5%) on reduced govt. spending and budget deficit from declining oil/gas revenues. Whereas imports are down 6% y/y to.7, finished output has decreased 11% to1.1. Recently, the govt. took full control of the Arcelor Mittal Ennaba mill and is doubling its rebar capacity to 1.5. 7 6 5 1 Finished Steel Consumption 6. 5.6 5.7.6.8 F/C 6. 6.5 11 1 1 1 15 16 e 17 Outlook: Moderate growth expected next year, driven by housing spend while infrastructure investment remains subdued. Import duty applicable to non-eu countries will double to % from 16. New projects will take finished steel capacities up to 8m tons by. Finished Steel Imports 5.9 5...7. 1 11 1 1 1 15 Source: MBR, ISSB Long Products 16
Morocco Notable improvement in economic performance Political & Economic Developments: Regional and local council elections completed in early 15 with national parliamentary elections scheduled for 16, leading to continued stability. % 6 5..7 GDP. 5.7 F/C.8 Macroeconomic indicators continued to improve: Outlook: Inflation @ 1.5% Unemployment @ 8.7% Fiscal deficit @.% Strong agricultural output and improved performance of other sectors accelerate growth. Growth f/c at 5% in 15, boosted by exceptional harvest and acceleration of industrial activity. Slowdown expected in 16 with return to normal agri output. However, current A/C balance should improve with lower energy prices and higher exports. 17 Source: IMF 1 % 8 6 11 1 1 1 15 16 17 7.9 Source: IMF Fiscal Deficit 9.5 7.9 5.5 11 1 1 1 15.
Morocco (cont d) Steel demand growth continues this year, flat next year Steel Developments: Expansion in industrial activity and strong economic performance push steel consumption up by 5.1% to. Technical and gas supply issues reduce output 6% this year to an est. 1.9m tons. Imports are up 5% to 1.1 due to production shortfall and demand growth..5.5 1.5 Finished Steel Consumption F/C..8.8.9...6 11 1 1 1 15 e 16 17 Outlook: Demand is f/c to remain static next year or grow marginally at best - in a slow economy with recovery expected in 17. With AD duty in place on CRC and as steel production returns to normal, output will rise in the next years while imports decline. MT 11 1 9 8 7 6 5 Finished Steel Imports 1,7 81 85 65 7 11 1 1 1 15 Source: ISSB MBR 18
Libya Armed conflict continues to weigh on economic performance, reserves sharply down Political Economic Developments: Continued conflict brings the country closer to fragmentation, in effect with two govts in place. % 11 15 GDP F/C Clashes between rival militias have caused widespread damage to property and infrastructure, reduced oil output to K bpd (from 1.7m bpd). As a result, GDP contracted by an estimated % in 1 and 6% in 15. The large fiscal and trade balances of 1 turned into deficits, also due to drop in oil prices (8% of GDP in 15). Outlook: GDP is growth est. @ % in 16 and 6% in 17. Govt. spending will decline and will be limited to salaries & subsidies. Official reserves expected to decline by $5-bn to about 1 months of imports. 5 6-1 11 1 1 1-6 15 est. 16 17-7 -6 Source: IMF -1.5 - Fiscal Deficit % 7 6 5 1-9.1-1 11 1 1 1 15 est. - -1.6-9 Source: IMF 19
Libya (cont d) Following growth last year consumption is down with deterioration of political situation Steel Developments: Steel consumption sharply down (est. - 1%) due to intensifying civil war and lower govt. spending with widening budget deficit. Production is down to half of available capacities (1.5) as power shortages impact LISCO s operation. 1.6 1. 1. 1.8.6.. Finished Steel Consumption 1. 1..9.1 F/C 1. 1.1 1.1 11 1 1 1 15 est. 16 17 Exports of HRC has resumed with Egypt being a target market. MT Finished Steel Imports Outlook: Assuming the political situation doesn`t get worse steel output should rise along with HRC exports. 1 8 6 8 66 779 666 6 Consumption will remain flat next year before growing again in 17. 11 1 1 1 15 Source: ISSB, Ezz Steel estimates, MBR
Tunisia Economic performance has been weak due to terrorism and political tensions Political & Economic Developments: The economy has further weakened in 15 due to ongoing political tensions and terrorist attacks. Improvement in trade balance in H1 15 due to strong agricultural exports and declining energy import bill was offset by a deterioration of tourism proceeds. The fiscal deficit is expected to increase to 6.% of GDP in 15, up from.1% last year. Outlook: Modest growth recovery expected in 16 with GDP f/c at.8% mostly due to improved external demand, accelerated reform and reinforced security together with moderated commodity energy prices. % 5 1-1 - -1.9 Source: IMF % 8 7 6 5 GDP F/C.7.6.8. 1 11 1 1 1 15 est. 16 17 Source: IMF Fiscal deficit 6.8 6..6.1. 11 1 1 1 15 1
Tunisia (cont d) Steel Market shrinkage in 15 with recovery expected in 16 Steel Developments: Steel consumption is down 17% y/y to 87K MT under impact from economic shrinkage and terrorism activity. Imports which account for more than half of consumption, is down 19% y/y to est. 6K MT this year. MT 1 1 1 8 6 Finished Steel Consumption F/C 1,185 1,5 1,5 856 88 88 87 11 1 1 1 15 est. 16 17 Outlook: Consumption is likely to recover to 1m mt in 16 with improved security and political stability. Imports will also rise from next year to satisfy the growth in demand. MT 8 6 Finished Steel Imports 77 659 596 61 6 11 1 1 1 15 est. Source: ISSB Long Products
Regional Outlook To Consumption growth will peak in 17. Egypt is the highest growing market Egypt Algeria Libya Morocco Tunisia Finished Consumption F/C (15 ) 15 16 17 18 19 CAGR (15 ) 1.1 11. 1.7 1.7 1.7 15.6 9.1% 5.7 6. 6.5 6.9 7. 8 7% 1.1 1.1 1. 1. 1. 1.6 7.8%.....5%.9 1 1. 1. 1. 1. 7.6% Total Finished Consumption y/y Growth.8.7.8 6. 8 9.9 7.5% - 9.1% 9.% 6.5% 6% 6.8% -
Finished Capacity Expansions in N.A. 6 capacity additions in the next 5 years North Africa Capacity Expansions (16 ) Country 16 17 18 19 Egypt.5 -.5 - - Algeria.. 1. - - Total Expansions.9. 1.8 - - Current N.A. Capacity 6 6.9. Total N.A. Capacity With Expansion 6.9.
Final Words.. North Africa is a fast growing region with huge potential due to large population growth, production shortfall and infrastructure deficiency not to mention reconstruction requirements in war-torn Libya. Egypt will lead the growth as it embarks on mega development plans. Capacity expansion will continue with Algeria in particular increasing output to replace imports in full by 18. 5
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