4Q16 preview Egypt Cement 9 February 2017-

FIRST TAKE
Egypt cement sector 4Q16 preview volumes and prices to
improve QoQ; ARCC, SCEM, SVCE are expected to gain
Latest indications suggest 4Q16 cement sales volumes having improved QoQ and YoY; utilisation rates averaged
96% in 4Q16 vs. 88% in 3Q16 and 94% 4Q15 within our coverage universe
4Q16 prices are anticipated to rise 10%-15%; backed by seasonal recovery in demand and, with producers
passing on cost increases post the EGP-float
Overall for 4Q16, we see positive indications for Arabian Cement, South Valley Cement and Sinai Cement
We continue assuming a positive outlook on cement for the medium-term, given healthy demand; however,
near-term pricing pressures could arise in 1Q17

Cement volumes and prices to increase in 4Q16. Current price Target Price Upside
Recom.
Overall, as per latest dispatch figures, cement volumes (for (EGP) (EGP) Potential (%)
most companies under our coverage) improved on a
SUCE BUY 14.9 26.5 77%
quarterly and annually basis; cement utilisation rates
averaged 96% in 4Q16 vs. 88% in 3Q16 and 94% 4Q15. MBSC BUY 20.0 UR 173%
We believe that the upsurge in volumes comes partly on SVCE BUY 5.1 7.4 44%
the back of healthier demand from construction activities SCEM HOLD 20.4 25.4 25%
(including infrastructure projects). In addition to improved MCQE BUY 92.8 146.5 58%
demand, heightened cash-costs (due to the EGP float),
ARCC BUY 10.1 15.6 54%
seem to have also translated to higher prices; on average,
th
up QoQ by c. 10% -15%. Specifically, producers that are Closing price as of 7 of February 2017

located in Upper Egypt (i.e. MCQE, SVCE, MBSC etc.) are

likely to witness stronger pricing power; given our knowledge of the demand/supply equation being relatively healthier
compared to other geographies in Egypt.
Clinker production rates flat QoQ. Clinker production rates dropped to an average of 81% in 4Q16 cf. 83% in 3Q16 and 90%
in 4Q15; which could be a result of excess clinker inventory carried forward from the previous quarters.
1Q17 indications of a slowdown in demand. Some indications, during the month of January 2017, point towards a slowdown
in construction activities that, in turn, has negatively impacted most building materials prices; including steel and cement, in our
opinion. As per local sources, average cement prices recently dropped by c. 11% MoM.
Risk of oversupply. Although we expect demand to pick up going forward, with prices anticipated to increase throughout
2017-2020, occurrence of an opposite scenario cannot be ruled out. The army is expected to establish six new production lines
with a capacity of c. 2mtpa each expected to be operational within 12-18 months, in addition to the three new cement
licenses recently acquired by South Valley Cement, El Sewedy Cement and Egyptian Cement each worth EGP160m.
Arabian Cement (ARCC) sales volumes and clinker production rates strengthened. Sales volumes improved QoQ (up c.
15%), however, was almost flat YoY (up 1%); utilisation rates stood at 87% vs. 76% in 3Q16 and 87% in 4Q15. Moreover, clinker
production rates reached 98%, up 12pps QoQ and 16pps YoY.
Sinai Cement (SCEM) sales improved, clinker production higher QoQ; performance continues to improve, post the switch
to coal. Utilisation rates significantly improved on a QoQ and YoY basis; reaching 79% vs. 63% in 3Q16 and 54% in 4Q15.
Moreover, clinker production rates improved to 83% vs. 78% in 3Q16.
South Valley Cement Egypt (SVCE) positive on sales, weak on clinker production. Noticeable performance on cement
volumes; utilization rates stood at 124% in 4Q16 vs. 94% in 3Q16 and 108% in 4Q15. However, clinker production rates slightly
dropped QoQ by 0.4pps to 78%, with a YoY drop of 17pps.
Misr Beni Suef Cement (MBSC) QoQ improvement. Utilization rates and clinker production levels improved significantly on
a quarterly basis by 13pps and 21pps, respectively. YoY, however, utilization rates dropped significantly by 36pps to reach 85%,
while clinker rates stood at 66% (down 15pps).
Suez Cement (SUCE) mixed signals. Cement sales volumes increased by 10% QoQ, yet down 20% YoY; with utilisation rates
reaching 69%, cf. 63% in 3Q16 and 87% in 4Q15. Clinker production rates plunged, reaching 41% vs. 60% in 3Q16 and 69% in

Pakinam El-Etriby Allen Sandeep

+202 3535 5017 +202 3535 5010 1
pakinam.eletriby@naeemholding.com allen.sandeep@naeemholding.com
 First Take Egyptian Cement Sector 1Q16 preview

4Q15. Worth noting that Suez group plans to upgrade the Helwan and Tourah plants to coal; we expect the conversion to be
completed by mid-2017 and 1H18, respectively.
Misr Cement Qena (MCQE) relatively weak indications. While MCQE had always witnessed above-average utilisation rates
among peers in Egypt, its cement volumes dropped QoQ average consolidated utilisation rates amounted to 107%, versus
116% in 3Q16. Clinker production rates also dropped, standing at 101% for the quarter; down 8pps QoQ.

Cement utilisation rates 3Q16 2Q16 1Q16 4Q15 4Q16e

SVCE 94% 105% 118% 108% 124%

SUCE 63% 62% 75% 87% 69%

ARCC 76% 78% 82% 87% 87%

MBSC 71% 93% 130% 120% 85%

BMIC 107% 95% 113% 109% 111%

MCQE* 116% 96% 134% - 107%

SCEM 63% 85% 79% 54% 79%

* MCQE consolidation of ASEC Minya started in 1Q16

2
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