New tariffs leave Egypt’s small steel producers in limbo
CAIRO - Small steel producers in Egypt face an uncertain future after the application of protectionist tariffs to iron billet and steel imports.
“The new tariffs will raise the price of production requirements,” said Tareq al-Gioshi, a steel factory owner. “This will cause losses to producers, given the fact that they cannot raise the price of their final products.”
Steel producers affected by tariffs are not in a position to raise prices of their products while large steel producers are less reliant on imports and able to offset the increase.
The Egyptian Ministry of Industry and Foreign Trade started applying the tariffs April 15 to protect the local steel and iron billet industry against imports. The tariffs — set for 180 days, although they could be extended — amount to 15% on iron billet imports and 25% on steel rebar.
The ministry investigated semi-finished products of iron or non-alloy steel and steel rebar for construction purposes. On April 3, it said growth in imports had harmed Egypt’s domestic steel industry.
The Egyptian Ministry of Finance, which collects the tariffs at the country’s ports, said local factories faced unfair competition from imports.
One of the reasons local producers are losing to foreign suppliers is that production costs are considerably higher in Egypt, which producers attribute to the lack of government support and high energy prices.
“This is why applying the protectionist tariffs was necessary to protect the local industry,” said economist Ali el-Idrissi.
Egypt’s construction sector has been growing steadily with dozens of national megaprojects ordered by the government in all provinces. The Egyptian government is spending billions of dollars on the construction of electricity plants, roads, bridges and factories. The projects have created demand for construction materials, in general, and construction steel, in particular.
The real estate sector has also been expanding, even as demand dropped, with the prices of housing units out of reach for millions of Egyptians.
Before applying the new tariffs, Egypt sent a letter to the World Trade Organisation to justify its actions.
However, the potential harm to small producers by the protectionist drive represents an unintended consequence for Cairo.
Only a handful of major steel producers — those that can produce their iron products and steel rebar and are, therefore, not reliant on imports — would benefit from the new tariffs, industry experts said.
“These are the producers who do not need to import the billets because they produce enough of them for their own manufacturing needs,” said Ahmed al-Zini, head of the Construction Materials Section at the Federation of Chambers of Commerce. “As for small producers, they have to import production requirements from other countries.”
Of 25 local steel factories, only five produce billets needed for construction. The production of those five factories, producers said, cannot satisfy local needs. Egypt’s steel factories need 8 million tonnes of billets for steel production every year but only 4.5 million tonnes are produced domestically.
This is why small producers said the new tariffs offer protection to something that is not present. Major billet producers said their factories are working at 60% capacity and they could meet local demand if given the opportunity to ramp up production.
However, critics warned this could lead to monopolistic practices that would cause a surge in construction steel prices.
Soon after the application of the tariffs, some producers reportedly raised the price of construction steel by almost 600 Egyptian pounds ($35) to 11,600 pounds ($674) per tonne.
Producers such as Gioshi will have to either raise prices of their products to cope with the rise in their production costs or stop working.
“We hope the authorities will reconsider these protectionist tariffs,” Gioshi said. “This decision benefits nobody but those who want to monopolise steel production.”