Daily News Egypt sat down with Bruno Carré, Managing Director of Suez Cement, to talk about the company’s latest updates on converting its facilities to coal. The company official also discussed the company’s future investments and the industry’s growth potential.
What is your evaluation of the construction sector and your outlook for it in the coming year?
Recently, some statistics have been published showing that construction is growing very actively within the gross domestic product for the second quarter of the year, by around 18% if am not mistaken. The number is showing the demand for construction. It us not totally reflecting what is happening because part of the construction activity was not captured by the statistics because they were not performed by companies in an official way. In the past years this [informal] activity was significant to the point where we seen growth in the cement demand while the main projects were very limited. The cement consumption remained almost flat so this means that construction activity that was not captured by statistics was growing. For example, like adding a store to a building. Now there is a willingness from the authorities to try to control the illegal development. It is a good evolution.
The cement consumption this year grew by 1.5%. The market is growing and becoming more proactive. We see some compound developments and some roads developments. The developers are starting a new development wave. They are trying to go to the middle class more than the upper middle and the upper class that they have been targeting before.
We expect this growth to continue because so far the big projects that we have been hearing about such as the Capital City, some of the North Coast projects and the one-million-housing project have not yet ready to go and are still under discussion.
Going to the cement sector, some companies made statements arguing that the Ministry of Environment has been very strict with its environmental regulations. What’s your take on that?
This is the same wave you see when you have tightening regulations. What we have seen is definite proactive position from the environment ministry and the government. In exchange of using a different energy, companies were asked to upgrade their environmental standards. It came with something that is demanding and tough compared to the prior regulations but the state of arts is about using and implementing the technologies that are available that are implemented in many other developed countries. I think it is a balanced win-win situation and we have some time to get aligned with these regulations. We have to accept the new rule of the game.
You have revealed before that two factories are to be converted to coal this year, adding to the other two that were converted in 2014. What is the update on that?
Now we have two [converted] plants, the one in Suez and the one in Kattameya which are fully operating on coal with good performance in terms of environmental impact. We are already complying with the regulations. We have to do the conversion on the others, but it is taking more time because they are close to residential areas and logistics are more complicated because we are far away from ports. The regulations are stricter and we are working actively to define all the needed equipments for that. We are confident that we can move ahead with the project this year but it will take until the end of 2016 to really implement all that. We are currently discussing the permits with the Ministry of Environment.
What is the volume of investments you’ll need to convert the two factories?
For big plants you need around €30m to convert to coal and to also move ahead with waste energy. So for the two you need €60m and in addition we have to complement the environmental installation so that’s an additional EGP 100m.
How much has it cost to convert the Suez and Kattameya plants?
They are slightly smaller plants. So it required around EGP 250m per plant.
What about the fifth factory that the company owns. Will it be converted or not?
So the fifth factory is a little bit more complex because it is in Minya but it is making white cement so it is more difficult from the technology stand point to use coal. The transportation to coal down to Minya is more complicated. We have not defined our plan yet for this factory.
How do you evaluate the gas that is provided to heavy industries?
Currently the cement industry pays $8 per mbtu [Million British Thermal Unit], which is the highest price paid by any customer in Egypt. The people using gas to generate power pay around $2.5 or $3 per mbtu. Then you have the price for fertilisers and for steel but $8 is the maximum. I think that cement is the only industry paying that much. It used to be slightly below the international price of gas but as we know the last international price of energy has come down and for the price of gas. So the $8 is still lower but not so much. It is lower if you import LNG [liquefied natural gas], which is what Egypt is doing. For gas available in the country, $8 is almost an international price. What the industries are realising that gas is better used in households than in plants. It is a clean energy so it is better used for households and cars. With gas, you can do much more than burn.
What are the company’s revenues so far this year?
For the first semester, our total revenues went down from EGP 3.2bn to EGP 2.9bn so almost 10% lower and it is mostly a pricing issue. The situation was that in 2014, the energy crisis was very severe and it impacted the industry so there was not enough cement to meet the demand. We had to import clinker and cement from abroad and so the mismatch of supply and demand, where the supply was less than demand, resulted in the pricing going up. This year even if the energy situation has not been solved, it has improved much more. The factories were delivered with most of the quantities they were looking for. Some started to convert to coal and the demand didn’t increase much, the production increased by 20% and the market didn’t increase much. The supply and demand balance was totally reversed and we had more supply than demand and the priced basically collapsed.
This 10% was because there was a small volume and significant drop in prices. This also had an impact on our economic performance because our profits declined. We are getting into a level of profit which is little compared to the invested capital. We have invested capital amounting to EGP 8bn.
We believe it is short-term and the situation will improve and this is why we continue to invest in the country.
How much is the company targeting in terms of revenues for the rest of the year?
We are basically optimistic that the market should grow. It will be more dynamic. It might go up to 4% or 5% next year.
Do you expect the prices of cement to be stable for the next year? As you know, they have been stable for the past nine months.
I hope they would increase to reflect the cost increase we have but we need to have a better balance between supply and demand for that to happen.
Can you tell us about the cement industry in terms of consumption and demand in Egypt?
Currently 60m- 65m tonnes of clinker are produced annually, 10% of that is added with [additives] to have the cement means. This means that around 70m-75m tonnes of cement are being produced. This 10% difference is related to additives that are put in the clinker to clinker cement. The average in some countries is around 30% and the buildings are functioning well and not collapsing. So we can reach something like 80m-90m tonne capacity. The authority however decided the room for capacity and the licences. Consumption is around 50m-52m tonnes and there is room to grow and meet the growing demand.