How Egypt's Steel Import Tariffs are harming its Independent Re-rollers?

With the intention to protect domestic steel industry against dumping and unfair competition, Egypt's Finance Ministry imposed a temporary tariff of 15% on iron pellets and billets and of 25% on rebar imports last month for the period of 180 days.

The local integrated steel producers in Egypt had been requesting the government over past one year to implement anti-dumping measures in the wake of oversupply of billets due to tariffs imposed by U.S. on the iron and steel imports.

While the integrated steel manufacturers are happy with the decision some of the independent as well as small re-rollers have halted their production and sales risking thousands of jobs. This is because although large integrated steel processors make their own billets and therefore don't rely on billet imports, the local steel re-rollers and small factories are caught in the middle as they were majorly dependent upon imports.

Re-rollers' dependency upon imports

There are about 25 local steel factories in Egypt out of which only five produces billet required for construction. Now the production of these five companies cannot meet the billet requirement of the country because Egypt's steel factories need 8 MnT of billets for steel production every year but only 4.5 MnT are produced domestically.

This is why small producers are against the new tariffs as these tariffs are offering protection to something that is not present. On the other hand major billet producers said that their factories are working at 60% of the capacity and they could meet local demand if given the opportunity to ramp up production.

The big dilemma

Amid this tussle, the industry experts are of the opinion that as only a handful of billet manufacturers are there in the country, this situation could lead to monopolistic practices that would cause a surge in construction steel prices. Also while the independent re-rollers will have to raise prices of their products to cope with the rise in their production costs or shall stop working.

According to reports both the cases have happened, while soon after the application of the tariffs, some producers reportedly raised the price of construction steel by almost EGP 600 (USD 35) to 11,600 pounds (USD 674) per tonne, at least eight re-rollers had stopped their production in the country as of now.

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.