Lafarge Egypt: Cement options narrow as production quotas make slow start

By David Whitehouse
Posted on Monday, 6 September 2021 18:50

REUTERS/Gonzalo Fuentes

Egypt’s cement industry will be running out of options if production limits imposed by the government fail to lift prices, Lafarge Egypt CEO Solomon Baumgartner tells The Africa Report.

Prices in the country are “very, very low”, Baumgartner says in Cairo. If that doesn’t change, cement production in Egypt is “a losing proposition.”

In July, the country’s competition authority approved a request by cement makers to impose output cuts. The production quotas came into effect on July 15 for a one-year period. Lafarge has been losing about 20% of its sales in volume terms due to the quotas, and Baumgartner wants prices to rise by 30% to 35% between end of September and mid-October.

Lafarge, alongside others in the industry, will consider pulling out of the quota system and looking for other solutions if prices don’t increase, Baumgartner says. There are no other obvious ideas available, he adds. “It has to work, full stop.”

There has been an increase in prices in recent months, but it has not been fast enough, Baumgartner says. The month of August saw a “very rocky and difficult start” to the scheme, which covers production but not pricing, as government entities continued to sell cement heavily at the old price.

  • “The government has to play the game” as the major market player. Many producers “can’t take another month like that,” he says.
  • The government pushed ahead with quotas without understanding the enforcement mechanism to be used, Baumgartner says. “The mechanism did not work as it should […] in theory. The decision is the easy part. Implementation is more difficult.”
  • “There has to be trust that the cap works. That has not yet happened.”
  • Rising costs for raw materials and energy are putting further pressure on producers, Baumgartner says. “Egypt is not such a low-cost place” for cement production compared with Algeria or Turkey, he adds.
  • Oversupply in the market, of 25 million tonnes, could take several years to be eliminated, and it’s possible that the one-year quotas may have to be extended, he says.

Green cement

Baumgartner says the steps taken so far are going in the right direction and he is confident that the quota scheme will work. He is optimistic about the longer-term outlook, arguing that the government has, since 2016, achieved stability and sustained growth.

He predicts annual GDP growth of 5.5% to 6% in coming years. “I feel we have bottomed out in 2021,” he says. “We should see a recovery in the cement sector next year.”

Per head consumption of cement in Egypt remains low at about 450 kg per year, a figure Baumgartner says should be in the high 500s to low 600s. Population growth and urbanisation will drive consumption higher, he says.

Baumgartner wants to see green production and low carbon dioxide emissions as the criteria used to limit cement production. At present, he says, Egypt lacks a “holistic” system to monitor green criteria in cement.

  • This, Baumgartner says, would leave the market free to operate, and could serve as a trigger for industry consolidation as profitable producers of green cements will want to scale their technology.
  • He says the government is “working on it”, but suspects that Egypt may still be 12 to 18 months away from having such a system.
  • In the meantime, he adds, producers “need air to breathe.”

Bottom line

Lafarge is confident, for now, that Egypt’s long-term growth prospects make it worth putting up with short-term cement oversupply.

Understand Africa's tomorrow... today

We believe that Africa is poorly represented, and badly under-estimated. Beyond the vast opportunity manifest in African markets, we highlight people who make a difference; leaders turning the tide, youth driving change, and an indefatigable business community. That is what we believe will change the continent, and that is what we report on. With hard-hitting investigations, innovative analysis and deep dives into countries and sectors, The Africa Report delivers the insight you need.

View subscription options