Egypt's Ezz Steel set to benefit as prices rise

Soaring steel prices bode well for the GCC's biggest steel producers, including Ezz Steel, who are on track to tap into a boom in infrastructure projects across the region

Developers and public-sector clients embarking on large-scale construction projects are steeling themselves for rising prices of a key building material.

Steel prices have risen by about 17 per cent this year, driven by strong demand in emerging economies and the recovery in the developed world.

As GCC governments pump billions of dollars into construction projects, rising steel prices also bode well for shares in some of the region's biggest producers of the metal, including Ezz Steel.

Egypt's biggest steel producer said this week that it was raising the price of rebar, used to reinforce concrete, by 100 Egyptian pounds to 4,450 Egyptian pounds per tonne.

Global steel producers have increased prices in response to cost pressures from the climbing price of iron ore, a component in steel manufacturing.

Ankur Agarwal, an analyst at Nomura, said that despite the political turmoil in the country, "the longer-term attractiveness of the Egyptian steel market, and therefore Ezz Steel, a dominant player in the market, is still intact".

The absence of a permanent government has also prompted private homebuilders to construct "significantly" on agricultural land, in the absence of any laws prohibiting the practice, he said.

And with 60 per cent of Ezz Steel's business targeted at the domestic market, Mr Agarwal said the company was likely to benefit from increased steel consumption.

Ezz Steel's stock price performance should also be viewed against a backdrop of rising steel prices in Egypt.Domestic prices were up 12.5 per cent in the first quarter of this year from the fourth quarter of last year, Mr Agarwal said.

He has a "buy" rating on the stock, with a price target of 12 pounds, and he said the company remained good value for longer-term investors.

Since the crisis in Egypt that forced Hosni Mubarak from the presidency, Ezz Steel's stock has underperformed the EGX 30, Cairo's benchmark index, by almost 30 per cent.

Yesterday, the stock traded 1.3 per cent higher at 8.05 pounds.