EUR 9.12 For Business Accounts Only

Ezz Steel - PLACING EZZ UNDER STRESS TESTING, STILL SUPPORT NEW ERA EXPECTATIONS

​Ezz Steel, followed by the rest of the market, reduced its selling prices by EGP 400/ton last Thursday 16th Feb on the back of three main factors; 1- Local currency appreciation against USD in the past days, reaching EGP 16/USD. 2- Imported cheaper, Turkish and Ukrainian, billets and steel, dumping local market. 3- Local demand recession post floatation. This reduction, on the one hand, led to higher losses to merchants who bought steel pre price reduction and now have to sell this inventory at the new reduced prices; while on the other hand, demand recession is expected to persist, as consumers halting their demand on the hope of more price reduction going forward. Furthermore, the persistent change of local selling prices, as prices are being revised now on weekly basis rather than the previous monthly basis, have spread a negative sentiment to consumers and merchants who feel uncertain about the best timing to purchase and making the highest gain. However, we do not see demand recession as a main risk for local steel producers in general and for Ezz Steel in particular. WSA data showed that the Egyptian steel market was under supplied in 2015, as production stood at c7mntpa, declined to c6mntpa in 2016, while consumption recorded c10mntpa in 2015, consumption figures are not published yet for 2016. Meanwhile, as we cited on a note sent yesterday, the recent reduction in local steel selling prices was already priced in our previous fair value of EGP 20.9/share, since we expect, as mentioned in our latest update issued in late Dec 2016, an ex factory average selling price of EGP 7,700/ton over 2017. We remind our readers that ESRS’ stock have reached our fair value in 12th of Jan 2017, reaching its peak of EGP 22.8/share in 17th of Jan.