Egypt’s iron tariffs threaten some of its own companies

CAIRO — Some of Egypt’s steel industry rerollers have halted production and sales in the face of protectionist duties the country recently began levying on some imports. One industrial organization says the tariffs could lead to the loss of thousands of jobs.

The tariffs aim to protect domestic iron billet makers from foreign competitors. Large steel processors make their own billets and therefore don’t rely on imports, but local steel rerollers and small factories are caught in the middle.

As of April 23, at least eight rerollers had stopped production after the Egyptian Ministry of Finance on April 15 started collecting duties of as much as 15% on iron billets and 25% on steel rebar. The tariffs are to be imposed for 180 days but could be renewed.

Egypt produces an estimated 7 million to 7.5 million tonnes (7.1 million to 8.27 million tons) of steel per year. In a Jan. 13 interview, Reuters quoted the Al-Marakby Steel Co. CEO Hassan Al-Marakby as saying that Egypt’s steel industry makes up about 3.2%, or 84 billion Egyptian pounds ($4.9 billion as of April 29), of the country’s gross domestic product.

The Ministry of Finance said in an April 15 statement, “The proceeds of these duties will revert to the account of the Export Development Fund with the Central Bank, which helps to consolidate the activity of the Egyptian export sector and thus provides more jobs for young people.” The tariffs are intended to increase the growth rate of domestic productionand sales.

Billet manufacturers recently demanded the anti-dumping duties in reaction to a global oversupply resulting from US duties on steel imports in March 2018. They also lobbied for fees on rebar imports.

In December 2017, Egypt had imposed five-year anti-dumping duties on rebar imports from China (at 29%), Turkey (7% to 22.8%) and Ukraine (17.2% to 27.0%). Iron billet manufacturers sought duties on imported iron ore as well.

Now, “China, Turkey and Ukraine will be subject to the duty imposed in late 2017 in addition to the 25% fee imposed April 15 on imports of rebar,” said Mohamed Hanafi, director general of the Chamber of Metallurgical Industries, which is part of the Federation of Egyptian Industries.

“When it comes to billets, these three countries will only be subject to the 15% imposed April 15,” Hanafi told Al-Monitor.

Marakby had warned in his January interview that Egyptian factories would close without protectionist measures.

“The coming period [will be] very difficult for the steel industry,” he said, citing the global overproduction and stagnant local demand. He also stressed the need to boost Egypt’s national industry and increase its value-added products rather than relying on imports.

Jamal al-Jarhi, chairman of the Chamber of Metallurgical Industries, told Al-Monitor, “Egypt’s billet production ranges between 3 million and 4 million tonnes annually, compared with 8 million tonnes needed by the Egyptian market. Some 1.7 million tonnes of steel were imported in 2017, but [that amount] almost doubled in 2018 to nearly 3 million tonnes.”

He added, “In the first 10 months of 2018, billet imports accounted for about $1.4 billion compared with around $804 million in 2017.”

For Mohamed Magdi, associate vice president at Beltone Financial, the measure is in the best interests of manufacturers that are part of the complete steel cycle — those who produce iron ore and manufacture it to be supplied in its final form to traders and then to the end consumer. However, he noted in an April 15 interview with CNBC Arabia that the temporary duties are hard on rerollers, which rely on imported iron billets to produce steel rebar.

He explained that Egypt’s major steel manufacturers suffered losses recently despite the decline in iron prices worldwide. The Egyptian government had lifted subsidies on petroleum products and electricity as part of its economic reform program with the International Monetary Fund, which reduced some iron companies’ profitability.

At a Chamber of Metallurgical Industries press conference April 14, rerollers asked the government to stop implementation of the 15% duty on iron billets, demanding the Council of Ministers and the relevant authorities form a committee to analyze the balance sheets and profits of rerollers.

Jarhi, who owns a rolling mill in Suez, said at the news conference, “The situation is difficult now. About 22 rerollers could be forced to close. This would lead to the discharge of thousands of workers.”

Ahmed al-Zinni, head of the Construction Materials Division of the Chamber of Commerce of Cairo, told Reuters on April 15 that the production halt at factories so far has “caused iron prices to rise by about 500 Egyptian pounds [$29] per tonne.”

He added to Reuters, “The commercial sale price of iron in the Egyptian market currently ranges between 11,500 Egyptian pounds [$670] and 11,900 Egyptian pounds [$693] per tonne.”

Zinni also told Vetogate news that a 15% rise in iron prices would further increase the price of a tonne to a minimum average of 1,000 Egyptian pounds (about $58).

Hanafi — of the Chamber of Metallurgical Industries — explained to Al-Monitor that rerollers are currently considering whether to keep production stopped or increase prices. He believes an increase is the most likely option.

Hanafi added, “The government decided to impose a 25% duty on rebar imports to give small factories an opportunity to increase the prices of their products so as to achieve a profit margin.”

Jarhi affirmed that some plants have stopped production until further notice, and sooner or later, all factories that don’t produce their own iron billets would be “forced to halt production.”

He told Al-Monitor, “The Chamber of Metallurgical Industries has been in constant session ever since the Ministry of Finance decided to introduce the import fees. We are considering all options and measures to reverse this decision, which opens the way for integrated factories to monopolize the iron market. We might file a lawsuit before the administrative judiciary.”