Egypt's cement industry: a vital economic contributor
The cement industry in Egypt holds a fundamental role in the nation's economy, directly contributing to the infrastructural development and construction sectors. This industry, with a rich history dating back to the first cement company established in 1927, today houses 18 cement companies that collectively account for 1% of Egypt's GDP and nearly 10% of its manufacturing GDP. Notably, the industry saw a 33% rise in cement exports in the first five months of 2023, reaching $380 million, with major importers being Ivory Coast, Ghana, and Libya.
Overcoming economic volatility and government intervention
However, the industry has faced economic volatility. Inflation and currency depreciation after the 2011 revolution and 2016 currency floatation, respectively, have challenged the industry, causing a surge in production costs and demand fluctuations. Consequently, the government intervened to curb excess production, proposing a 10% reduction in production. The oversupply issue was further fueled by the government's establishment of a 13Mta military plant in Beni Suef in 2018.
Transformation from monopoly to competition
The dynamics of the industry have also transformed significantly over the years, transitioning from a monopolistic to a more competitive market. The 1990s liberalization resulted in significant foreign investments, with firms like Germany's HeidelbergCement, France's Vicat, Switzerland’s LafargeHolcim, Greece’s Titan Cement, and Mexico's Cemex making significant investments in the sector.
Technological evolution towards energy efficiency
On the technological front, the industry has evolved towards more energy-efficient production processes, driven by the urgency of environmental regulations. The adoption of alternative fuels and digital technologies for process optimization and predictive maintenance are key trends shaping the industry.
Navigating challenges and contributions to national development
Despite the challenges of overcapacity and recent regulations like the 2018 resolution to halt the issuance of licenses for new cement plants, the Egyptian cement industry's contribution to the national economy and infrastructure development remains significant.
Recent developments: investments, environmental initiatives, and export dynamics
The industry has witnessed transformative growth in recent years, marked by significant investments, mergers and acquisitions, environmental initiatives, and robust export dynamics. For instance, Vicat Egypt increased its stake in Sinai Cement, and Egy Holding Developments upped the construction rate of its EPIC Complex project. On the environmental front, the Suez Cement Group of Companies (SCGC) has invested heavily in reducing dust emissions and transitioning to non-fossil-based fuels, aligning with Egypt’s 2030 Vision and the UN's Sustainable Development Goals.
Moreover, the industry has demonstrated a commitment to corporate social responsibility, with Talaat Moustafa Group (TMG) Holding investing over EGP 5bn in community development initiatives. Despite the contrasting financial performances of different companies, the industry overall continues to hold an integral role in the country's economic fabric and shows promise for the future.
Timeline of important news related to the cement industry in Egypt
12.10.2022 - The Egyptian Prime Minister Mostafa Madbouly set the sale price of natural gas for the cement industry at $12 per million British thermal units (MBTU).
19.12.2022 - Vicat Egypt, a subsidiary of France's Vicat Group, increased its stake in Sinai Cement to 67.18% by investing EGP 139.55 million ($5.66 million).
03.01.2023 - Egy Holding Developments accelerated the construction rate of its EPIC Complex project in the New Administrative Capital (NAC) to 45%, aiming to complete construction by the end of 2023.
19.01.2023 - Egypt's exports of building materials, including cement, saw a 7% YoY increase in the first 11 months of 2022, totaling $6.37 billion. Cement exports also saw a 37% YoY surge.
01.03.2023 - Misr Cement - Qena reported a decrease in consolidated net profits after tax in 2022 but an increase in sales and total assets.
07.03.2023 - South Valley Cement Company reported a decrease in net losses in 2022, with higher sales than the previous year.
11.03.2023 - Sinai Cement also reported a decrease in consolidated net losses after tax in 2022, with an increase in sales.
21.03.2023 - Egypt made a strong presence at the global real estate event, MIPIM, held in Cannes, France, showcasing its urban development projects.
28.03.2023 - Egyptian lawmakers called for price controls on building materials following a significant price surge.
01.04.2023 - Egypt witnessed a record inflow of Foreign Direct Investments (FDIs), reaching an all-time high of USD 7.7 billion in Q1 2022.
04.04.2023 - Misr Cement - Qena decided to pay out a cash dividend of EGP 0.75 per share for 2022.
03.05.2023 - Orascom Development began delivering residential units in the first phase of its O West project in West Cairo.
29.05.2023 - Sinai Cement's consolidated net losses after tax decreased in Q1 2023, with sales significantly increasing.
02.06.2023 - Arabian Cement Company reported significant growth in net profits and net sales in Q1 2023.
05.06.2023 - South Valley Cement Company's net losses after tax increased in Q1 2023, but sales also increased.
07.06.2023 - Suez Cement Group of Companies (SCGC) invested heavily in technologies and initiatives to reduce environmental impact in line with Egypt’s 2030 Vision and the UN's Sustainable Development Goals.
13.07.2023: Egypt's cement exports rose by 33% in the first five months of 2023, totalling $380 million, as compared to $286 million in the same period in 2022. The main contributors to this increase were Ivory Coast, Ghana, and Libya.
There are several key challenges currently facing the Egyptian cement industry:
Energy Costs: A primary challenge for the Egyptian cement industry is the increasing price of natural gas supplied to the industry. Prime Minister Mostafa Madbouly has set the sale price at $12 per MBTU, a cost that could significantly impact cement manufacturers' operating expenses and profit margins.
Market Oversaturation: A substantial increase in Egyptian cement exports (37% YoY surge to $602 million) could suggest an oversaturation of the domestic market, pushing companies to seek growth opportunities abroad. This could create challenges in terms of logistics and market development in foreign markets.
Financial Performance: Despite some improvements, several companies in the sector are reporting net losses or decreasing net profits, like Misr Cement - Qena and South Valley Cement Company. This could be due to several factors, including increased operating costs, market competition, and overall industry conditions.
Environmental Sustainability: With global attention increasingly focused on environmental sustainability, the cement industry's carbon footprint is a significant concern. Companies like Suez Cement Group of Companies (SCGC) are investing in reducing their environmental impact, but these investments can be costly and may take time to yield returns.
Price Surges in Building Materials: Lawmakers are calling for price controls on building materials following significant price increases. The hike in reinforced steel and cement prices, hitting record levels, is impacting small contractors significantly, forcing some to cease operations. The industry is facing potential monopolistic practices and the challenge of maintaining profitability in an environment of price control.