New regulation could lift Egyptian steel prices

A new regulation prohibiting traders from importing billet into Egypt could support domestic longs pricing.

Authorities in the country announced a new regulation earlier this week that makes it mandatory for billet importers to have a manufacturing licence. This means mills and re-rollers will be able to import billet, while traders will be sidelined.

The new regulation allows for exceptions where the cargo has arrived at port, or is en route. Any traders who have made a 10pc or more downpayment will also be excluded, sources said.

Mills and re-rollers in possession of a manufacturing licence will be allowed to import billet in line with their production capacities, market participants said.

Most of the steelmakers in Egypt produce only enough billet for their own rebar manufacturing needs, while re-rollers are fed by foreign billet imports. Re-rollers will have to continue importing billet because of the very limited availability of domestically produced billet.

But most re-rollers in Egypt do not have the financial power to open a letter of credit for their imports, and work with international or regional traders who accept other forms of payments, such as cash against documents. Traders can continue to import on the behalf of re-rollers, according to one trader.

The new regulation is likely to curb imported billet volumes, at least in the short run, which could dampen CIS export pricing.

In the longer run, re-rollers will face higher financial costs for their billet imports, and this could be reflected in higher rebar prices, traders said.

And smaller re-rollers could form joint ventures to be able to negotiate better terms with foreign billet suppliers, a trader suggested.

Market participants estimate that the country imports around 2mn t of billet every year, and around one third of this was imported by traders last year. After importing the billet, those traders either sell the material to re-rollers, or co-operate with local re-rollers to have the billet rolled into rebar and then sell the rebar in the domestic market themselves, which dents on the sales of local mills.

Egyptian authorities have been working on a draft proposal to impose safeguard measures on billet and rebar since November 2018. Re-rollers have been opposing the proposal as it would lift their production costs. Market participants argued that the new regulation was a "middle way solution" and that the proposed safeguard measures would most probably be shelved after this.

source: Argus Media