Egypt Metals Report Q1 2013

BMI's Egypt Metals Report for Q113 examines the impact of political developments on domestic demandand output in 2013 and in the medium-term (2013-2017). The report examines the influence of the weakEgyptian pound on the sector and whether depreciation is sufficient to compete in an over-suppliedregional market. It also examines the promise of expansion in primary aluminium smelting withEgyptalum seeking to expand production to 400,000 tonnes per annum (tpa). The report also analyses thetrends in export markets, particularly in relation to the surge in steelmaking in the Arabian Gulf region.

In the first 10 months of 2012, base effects led to 2.7% growth in crude steel output to 5.56mn tonnes(mnt). However, flat and long sales on the domestic market were sluggish with rebar at very low levelsdue to a climate of uncertainty around the elections as well as a slowdown in activity associated withRamadan. BMI is confident that as the civilian democratic government finds its feet, investment andmanufacturing activity will pick up in the months ahead, which should support the upward domesticproduction trend going forward.

For 2013, BMI forecasts Egyptian steel production to grow by 7.0% year-on-year (y-o-y) to 7.22mnt, offthe back of greater investment in expanding production capacity and greater stability in the countryfollowing the 2012 presidential elections. We expect domestic demand for steel in Egypt to grow by 8.0%y-o-y to 10.96mnt in 2013.

In addition to more favourable market dynamics, BMI's forecast for 2013 is supported by ElmarakbySteel's plans to open its first meltshop to produce steel billets from scrap by end-2013. The 350,000tpaEAF in Giza will feed an existing 240,000tpa rolling mill, with the remainder exported or sold on thedomestic market. The country has been operating well under full capacity, with a utilisation rate under its8.8mntpa potential. Even without further capacity expansion, Egypt has the potential to grow by morethan 30% from 2010 levels, using plants that are currently in operation.

Over the last quarter, BMI has revised the following forecasts/views:

Despite political instability forecast over the short term, BMI forecasts annual crude output toreach 11.49mnt by end-2017. Although the production deficit will slowly shrink during ourmedium-term forecast period (2013-2017), we see Egypt's steel consumption reaching 14.91mntin 2017, meaning imported steel will be needed to meet demand. Nevertheless, BMI still seesthe shrinking deficit as a positive, given the depreciatory trend of the Egyptian pound.

Egyptian crude steel output should grow by a rather impressive 7.0% in 2013 to 7.22mnt, withsteel production expected to surge by a staggering 30.0% in 2014 once new smelters comeonline by end-2013.

BMI anticipates 8.0% growth in steel consumption to 10.96mnt in 2013, as the Egyptianeconomy stabilises, following civil unrest.