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Egypt's Ezzsteel seeks to meet rising iron ore, raw materials costs

London — Egyptian steel group Ezzsteel said Thursday the company benefited in 2017 from improved natural gas and electricity supplies for its DRI plants and steel works, but lack of funds and higher costs limited performance.

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A lack of steady gas access was seen in 2016 as Egypt previously prioritized gas for power generation until LNG imports aided the economy's growing consumption.

Iron ore pellet market shortages after the idling of high quality pellet producer Samarco's operation in Brazil have hit consumers of DR pellets, which are usually high in iron and low in silica and other impurities.

Ezzsteel's raw materials costs, which include iron ore pellets, went up to EGP29.5 billion ($1.67 billion) in 2017, from EGP16 billion in 2016, the company said in an earnings statement.

In 2017, the company produced 3.4 million mt of long steel products, up 2% year-on-year, and 1.1 million mt of flat products in 2017, up 22% on 2016, through two main subsidiaries EZDK and Ezz Rolling Mills.

Ezzsteel returned to normal operating mode in 2017, despite lack of working capital due to the Egyptian pound's depreciation, after several years of interruptions, said Ezzsteel Chairman and CEO, Paul Chekaiban

"We did not suffer any interruptions to our electricity or natural gas supplies," he said in the statement.

"The foreign currency needed for the purchase of our imported raw materials was made available without limitation. At the same time, we benefited from a favorable market environment."

Chekaiban said a readjustment of working capital lines to meet requirements is expected going forward, which will enable the company to fully benefit from prevailing "favorable conditions" in local and international steel markets.

Ezzsteel operates DRI plants at EZDK at El Dekheila, near Alexandria, and a new plant at Ain Sokhna, and states it now has a total 5.1 million mt/year DRI capacity, which places the company second largest worldwide for DRI.

Suez Steel, part of Solb Misr group, operates a DRI plant in Adabia, and Beshay Steel, a DRI plant called ESISCO in Sadat City.

An iron ore market source believed all Egyptian producers were now finding pellet supplies, with some usage of blast furnace grade pellets to help meet demand and account for price differences in the two segments as premiums rose.

Egypt produced 4.67 million mt of DRI in total in 2017, behind Saudi Arabia and regional leader Iran, according to World Steel Association data. The African country produced DRI at the highest annual rate ever last year, up from 2.68 million mt in 2016 and 2.45 million mt in 2015.

--Hector Forster,
--Edited by Maurice Geller,