KEY THEMES
The approval granted to 23 cement companies (listed at the end of this section) by the Egyptian Competition Authority (ECA) to cut their production capacity will apply to local sales for one year starting 15 July 2021. The new quotas will be set after taking into account the following formula applied by the ECA, indicating the amount of the production capacity cut for each company:
The amount of production capacity cut = 10.69% * Company’s production capacity + 2.81% * No. of production lines * Company’s production capacity + 0.968% * Age bracket * Company’s production capacity
We note that the ECA divided the companies into three age brackets:
Age Bracket I: Factories founded before 2007 for which 15 years are used,
Age Bracket II: Factories founded between 2007 and 2016 for which 10 years are used, and
Age Bracket III: Factories founded after 2016 for which 5 years are used.
We simplified the formula into the following:
y= x * ( a + b ꞵ1 + c ꞵ2 )
Where,
y = The amount of production capacity cut for the company.
x = The company's production capacity.
a (constant) set at 10.69%, b (constant) set at 2.81%, and c (constant) set at 0.968%.
ꞵ1 = The number of production lines.
ꞵ2 = The age bracket (set as either 15, 10, or 5 years).
In other words, the formula reduces to:
y= x * ( 0.1069 + 0.0281 ꞵ1 + 0.00968 ꞵ2 )
When applied, this formula will impact EGX-listed companies in the ways we worked out below:
Source: ECA, Prime Research.
At first, the news will seem positive for the sector overall in view of its tough conditions, especially the over-supply gap. However, to recoup any loss in their revenues resulting from lower volumes, companies (as shown in the below sensitivity table) would need to see prices rise first between 22-102%, depending on how many production lines a company has and how old it is. Generally speaking, the least impacted companies would be the young ones with a few production lines.
Source: Prime Research.
Of the five EGX-listed companies shown above, MBSC, MCQE, and SCEM would have the highest drop in volume (-31%), while ARCC would have the lowest (-26%).
Here are the 23 cement companies that requested to reduce their production:
1. Alexandria Portland Cement [ALEX].
2. Amreyah Cement.
3. Amreyah Intercement.
4. Arabian Cement [ARCC].
5. Arish Cement.
6. Assiut Cement.
7. Beni Suef Cement.
8. Building Materials Industries.
9. Egyptian Cement.
10. El Sewedy Cement.
11. Helwan Cement.
12. Lafarge Cement.
13. Medcom-Aswan for Cement.
14. Minya Portland Cement.
15. Misr Beni Suef Cement [MBSC].
16. Misr Cement - Qena [MCQE].
17. Nahda Cement.
18. National Cement Company in Beni Suef.
19. Sinai Cement [SCEM].
20. South Valley Cement [SVCE].
21. Suez Cement [SUCE].
22. Tourah Portland Cement [TORA].
23. Wadi El Nile Cement.