EUR 139.06 For Business Accounts Only

Egypt's Cement Sector Note

​Prosperity in demand boosted selling prices during 2016. Cement demand jumped by 7% y-o-y during 2016, a 3Y high, to stand at 57mn ton leaving the market with an idle capacity of 13mn ton. Massive infrastructure and energy investments coupled with stable demand over residential units, on the back of growing population and marriage rate, in addition to accumulating a stock pile of building materials by many real estate developers and contractors, all supported the robust demand growth recorded during 2016. This boosted average prices during 2016 by 13% y-o-y, where the annual growth was mainly driven from 46% y-o-y growth in 4Q2016. The asserted addition of a capacity bulk bodes ill for both prices and market shares. The Ministry of Defense has been reportedly ramping up construction activities in its owned 3.2mntpa cement plant Al Arish, in order to double the plant’s capacity by the end of the current year 2017. The Ministry also entitled China’s Sinoma for International Engineering to commence the construction activities of its 12mntpa six cement lines Greenfield project that is expected to be finalized by 2019, according to Sinoma. Additionally, three companies’ were awarded three of the 14 issued cement licenses by IDA, with 2mntpa each. These companies are expected to initiate construction activities of their newly awarded lines by this year, and hence; it will probably come on stream by 2019, according to our expectations. The addition of the aforementioned capacity is expected to weigh heavily over selling prices, as it is expected to expand the gap between production capacities and demand. This is also expected to squeeze market shares for the current market players, and accordingly; utilization rates. Meanwhile, we expect local demand to increase by a 5Y 7% CAGR over our forecast horizon, on the back of mega projects and the expected recovery in FDI. Nevertheless, it will remain below total available production capacity.