Egyptian steel industry will most likely face higher prices for electricity and gas this year. Energy expenditures will shrink 39% year-on-year, according to the 2015/2016 draft budget, which is yet to be approved by the president. The government plans to cut expenditures in order to maintain financial solvency, mainly by slashing energy subsidies that accounted for 70% of all state support and 20% of the budget deficit over the last 5 years, according to Alexandria University.
Nevertheless, another growth in expenses will hardly overcome the previous increase of energy tariffs. Over the past two years, electricity prices in Egypt increased three-fold, gas tariffs – by 75%. That raised the cost of long products produced in scrap-based EAFs by $36/t, and of those produced from DRI/HBI – by $73/t. Hence, the increase in gas prices offset the fall in iron ore observed over the period.
If the increase in energy costs, after the new budget is approved, does not exceed 15% this year, Metal Expert forecasts acceleration in rebar costs in Egypt by no more than $9/t for scrap-based facilities and by $21/t for EAFs using DRI/HBI.
After the increase in energy tariffs, the cost of rebar at re-rollers using imported billets and EAF-mills fed by DRI may become almost equal. Regular bottlenecks and consumption limitation of energy resources in Egypt including natural gas, as it was in the case of Ezz Steel recently, makes billet import a reasonable alternative.
Source: Metal Expert.