(Courtesy of Suez Cement)
(Courtesy of Suez Cement)

Cement Sector Recoveres in Q4 Yet Same Old Challenges Remain: Analyst


Egypt's cement sector further suffered this year, with cement sales down more than 14 percent in the third quarter of 2020.

Yet, NAEEM Brokerage's head of research, Allen Sandeep, believes that demand is recovering as October sales have reached pre-COVID levels.

Speaking to Delta Digest, Sandeep noted that demand suffered most during the second quarter, especially in April and May, when total industry sales dropped by almost 20 percent compared with pre-pandemic rates. 

Suez Cement, one of Egypt's largest listed cement makers, suffered a 99 percent year-on-year increase in net losses to EGP 709.3 million ($45 million) in the first half of 2020. In the same period, Alexandria Portland Cement reported a 26 percent year-on-year increase in its consolidated net losses to reach EGP 212.8 million ($13.3 million).

"In quarter three, we did see marginal recovery, but we were still 15 percent short of pre-coronavirus rates," Sandeep said. "I would presume most of this weakness to have come from the direct and indirect effects of COVID-19."

Egypt's cement industry has been struggling since 2016, after the Egyptian pound lost half its value against the dollar after being floated.  

The coronavirus pandemic has added insult to injury by decreasing demand in an already overcrowded domestic market.

Sandeep pointed out that the cement sector was already struggling with 40 percent excess capacity pre-COVID that must be eliminated in order for the industry to revive.

Real estate accounts for 65-70 percent of demand for cement, with the remainder coming from the infrastructure sector.

Aiming to introduce new legislation governing construction requirements, the government in May suspended building permits for establishment, expansion, elevation or modification of construction works in private housing nationwide for six months. Construction work for buildings under implementation has also been suspended.

The government later announced another six-month transitional period to wrap up the new legislation, with building still mostly halted in governorates nationwide, except for new cities that are affiliated to the New Urban Communities Authority.

Meanwhile, the government has set a deadline for submitting reconciliation requests on building violations across the country, which was extended multiple times due to a high turnout of applicants. It was last extended yesterday until December 31

It is believed that the suspension on building permits will be lifted at the same time when the government closes the door on reconciliation requests, which amounted to over 2.5 million applications so far.

"Building reconciliation, depending on the timeline, will play a role on demand, but the magnitude of it is hard to determine," Sandeep said.

"For the moment however, we see that the impacts are very minimal."

A reduction in energy costs and the provision of subsidized loans would be required to ensure the cement sector's long term sustainability, according to Sandeep.

Last month, the Egyptian Federation of Investors Associations agreed with Petroleum Minister Tarek El-Molla to form a committee to study reducing the price of gas supplied to factories and linking it to the global price.