Ezz Steel to cut costs, increase profits in 2014

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(Picture for illustration purposes only)

(Picture for illustration purposes only)

Egypt's largest steel producer, Ezz Steel, said it expects its profit to increase in 2014 thanks to a new sponge iron factory that should shave $50 to $100 off the cost of each tonne of iron it produces.

"We are working on increasing the firm's profitability from each tonne of steel," said Kamel Galal, Ezz Steel investor relations manager.

This they will do by replacing scrap iron in its manufacturing process with direct-reduced iron (DRI), also known as sponge iron, which it will make at a 1.8 million tonne-per-year plant it is due to bring on line in the second half of 2014. This will save the company $50 to $100 for each tonne of steel it makes, Galal told Reuters in an interview.

Ezz Steel hopes this will raise profits at its factories to the same level of its profitable Ezz Dekheila subsidiary, whose net profit reached 466.5 million Egyptian pounds ($67.6 million) in 2012, he said.

Ezz Steel, which owns three factories in addition to its Dekheila plant, has yet to release its full financial results for 2012. The four plants have a total rebar and flat steel capacity of 5.8 million tonnes.

Ezz Steel reported a net loss of 110.05 million pounds for the third-quarter of 2012 compared to a net profit of 264.73 million pounds a year earlier.

Galal expected that its fourth-quarter earnings, to be announced in two weeks, would be better than the previous quarter.

Ezz Steel has completed 80 percent of the construction of the new DRI factory, at Sokhna Port near Suez, but has asked banks for additional funding after costs rose to 3.5 billion pounds from 2.7 billion pounds, Galal said.

"We are renegotiating now with banks led by the National Bank of Egypt to help in the financing after a rise in interests rates and the exchange rate of the dollar increased costs," he said. "We are at the end of negotiations and close to signing with banks to increase the loan to 2.6 billion pounds from 2.2 billion."

The Egyptian pound has slid by more than 15 percent against the dollar since the 2011 popular uprising that toppled Hosni Mubarak, scaring away tourists and investors.

The government has also turned to domestic banks to finance a burgeoning budget deficit. Over the past few years it has also raised energy prices for heavy industries such as cement, steel and brick makers.

"For sure the price rise affected the production cost. Electricity prices rose to 0.33 pounds per kilowatt hour from 0.20 pounds in 2008, while natural gas prices rose to $4 for each million BTUs now from $1.25 in 2008," Galal said.

The country's fraught political climate since the uprising has weighed heavily on Ezz's operations. An Egyptian court ruled in September 2011 to withdraw the firm's sponge iron factory's license, but Ezz recovered the licence in November. The court also sentenced its former chairman and founder Ahmed Ezz to 10 years in jail and fined him 660 million pounds for corruption.

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