Countries around the world, including Egypt, are trying to absorb the economic and other repercussions of the Russian-Ukrainian war. Nor is the crisis mitigated by the global inflationary wave which is expected to affect all sectors and all citizens.
Current energy price hikes have weighed on Egypt’s construction sector, but fortunately the domestic market is self-sufficient in steel and cement and there is a good supply of ceramics, marble and porcelain, Hisham said. Yousri, Secretary General of the Egyptian Federation of Building and Construction Contractors.
However, Mohamed Lokma, a member of the board of directors, believes that the crisis in the construction sector will worsen if the Ukrainian conflict drags on.
Rising energy prices will increase freight costs, and the conflict in Ukraine will increase the cost of securing shipping, and therefore increase the cost of imported iron ore, Lokma said.
Energy prices represent, directly and indirectly, 6% of the cost of transporting raw materials and fuel to operate machinery in the construction sector. The current global crises could push that figure to 17%, Lokma added.
Steel prices are also expected to rise 8%. “The longer the war in Ukraine lasts, the more spending on hydraulics, civil defense and industrial security will increase. These things are imported for infrastructure projects, such as power plants and water stations, waste treatment and railway lines,” Lokma noted.
He warned that if oil prices continue to rise globally, they will negatively affect local prices and put more weight on the government’s shoulders.
The government should talk with industrialists, importers and contractors to agree on ways to deal with the global inflationary wave and supply chain disruptions in case the Ukraine crisis continues, Lokma suggested.
Egypt is self-sufficient in steel, but the government should discuss with steelmakers ways to reach a strategic stockpile that will allow it to maneuver if prices rise further, he said.
Similar discussions should take place with cement producers. Egypt produces enough cement for its own consumption and exports the rest, with Lokma wondering if it should increase local cement production and decrease the quantities exported.
Ahmed Al-Zeini, head of the construction materials division at the Federation of Egyptian Chambers of Commerce, agreed that the state needed to coordinate with steel and cement producers and importers. Prices of both had already increased by 6% before the war in Ukraine, he said, in measures anticipated by manufacturers in case the war drags on into the second quarter of 2022.
One of the factors that could affect the price of steel is the reduced availability and higher prices of iron ore pellets, essential for steel production, Al-Zeini said. Russia and Ukraine are major producers of this raw material.
Comparing local and international prices, Al-Zeini criticized the dumping charges imposed on imported steel, which are essentially aimed at protecting local production. These fees should be reviewed at present due to the rise in domestic steel prices to more than $1,000 a ton, he said, while Turkish and Ukrainian steel were sold for less than $800 before the outbreak of war.
He wondered why the government and private sector companies should bear the price difference.
The same goes for cement, Al-Zeini added. Cement prices rose in Egypt from LE 900 to LE 1,500 before the Ukrainian conflict without a reasonable excuse, while internationally cement was sold for the equivalent of LE 700.
Al-Zeini said the 50% increase in cement prices should be reviewed to avoid supply shortages, especially bearing in mind the high consumption of construction materials in Egypt in national projects such as railways, infrastructure in villages, housing and new towns.
“The state supports steel and cement producers by providing them with subsidized energy. Producers must respond to local market demands just as the state supports them,” Al-Zeini said.
Since there are Egyptian companies exporting cement at globally competitive prices, Al-Zeini said the building materials market should be overhauled under the current exceptional conditions.
*A version of this article appeared in the March 10, 2022 edition of Al-Ahram Weekly.