Egyptian cement producers face energy cuts

Muted levels of construction activity since the 2011 revolution, combined with constraints on electricity supply, has stifled operating conditions for Egypt’s cement producers, though new projects scheduled to launch in the second half of 2014 could provide a helpful boost to the segment, recently buoyed by the successful IPO of Arabian Cement.

The IPO, the first in Egypt for four years, of the local cement producer was 18.5 times oversubscribed after 85m shares were sold worth $110m. This emphasised the performance of the country’s capital markets in recent months, with the main index rising by more than 70% over the past year.

The large subscription for shares in Arabian Cement, in which Spanish firm Cementos La Union holds the largest stake, not only reflects the latent demand for new Egyptian stock offerings, but may also herald a much-needed turnaround in fortunes for the broader building materials sector.

Navigating challenges
Output in the building materials industry has been impacted by the turbulence with public spending on construction and infrastructure activity declining. The value of investments in the sector fell by 71% in 2012 according to data by the Central Bank, cited in a report by Bank Audi from March this year.

Private investments in new residential and commercial property development have also dwindled, albeit to a lesser extent. Rents for the best Cairo offices fell to $40 per square metre per month in 2013 from $50 since 2009 while retail rents have plunged to $100 per square metre per month from $150, according to data from real estate consultant Knight Frank.