CAIRO – 8 November 2020: In a webinar, cement producers presented their views on dealing with oversupply in the Egyptian market as production is double the market need.
CEO of La Farge Egypt Solomon Baumgartner-Aviles said the industry is still afloat in Egypt because the government has maintained constructions. Yet, he warned of the impact of the six-month ban on construction permit issuance that went into effect in May as well as the current crackdown on unlicensed buildings.
The ban applies to Greater Cairo, Alexandria, large cities, and the capitals of governorates. As reported by Al Ahram Online, constructions of residential units compose 70 percent of demand on cement.
For resolving the capacity issue, the CEO of La Farge Egypt suggested that innovation is crucial for mature markets. He elaborated that reducing CO2 emissions can be an incentive to regulate supply.
"We have to change how to produce cement like change the raw material mix," Baumgartner-Aviles added. He noted that "carbon credits can give stimulation as cement investment is no longer worthy."
Given that energy subsidy cuts came at the detriment of the cement industry which requires big amounts of energy, the CEO of La Farge Egypt highlighted that coal will continue to play a role in substituting traditional fuel.
Baumgartner-Aviles explained that alternative fuels are not competitive at present because they are not easy to acquire so as coal is now more competitive. Yet, he says that on the long run alternative fuels may be more competitive.
Procurement Manager at Arabian Cement Egypt Ali Zidan argued that the reduction of CO2 emissions may not be enough as cement producers already pay fines and the problem still exists.
Speaking of the raw material mix, Ali notes that producers must focus on improving resource utilization and not just decreasing production.
Regarding coal as an input in cement manufacturing, its imports declined from 3.5 million tons in January-June 2019 to 1.5 million tons in January-June 2020, Ali underlined suggesting that resorting to biomass can be a good approach.
As indicated by World Coal Association, 200 kilograms of coal are needed to produce one ton of cement, and 300-400 kilograms of cement are required to make one cubic meter of concrete.
The procurement manager at Arabian Cement Egypt showcased that the surplus stands at more than 30 million tons per year while the size of consumption per annum is just 50 million tons. However, he does not attribute the crisis the industry is going through to oversupply solely but also to a price war among producers.
Ali estimates that the calamity will aggravate when Al Masreyin plant enters service in 2021 for it will raise supply, and thus, surplus.
Managing Director of Suez Cement Jose Maria Magrina told press in 2019 that subsidy cuts caused production costs to rise by 11 percent. He also said that demand has been falling by five percent since 2016.
As reported by Al Ahram Online, cement consumption fell to 44 million tons in 2019 compared to 50 million tons in 2017 highlighting that Egypt's annual production capacity is estimated at 80-85 million tons.
In September, the publication reported the statements of the CEO of La Farge in Egypt who estimated that five or six cement producers may have to shut down by 2021 as a result. Currently, there are 19 producers.
Baumgartner-Aviles stated that demand dropped by nine percent in August. Moreover, he speculated that it will drop by further 20 percent in the fourth quarter of 2020, according to Al Ahram Online. The CEO of La Farge Egypt estimated that demand will dip by 15 percent to stand at 42-43 million tons in 2020 compared to the previous year. That is in spite of the ongoing construction of mega projects as they constitute only 30 percent of demand.