The government raised the price of natural gas for the industrial sector by 28% effective November 1, putting manufacturers before a new challenge for their businesses.
The decision will lead to an increase in the final cost of the products in which natural gas is used.
The price of natural gas is now $ 5.75 per million British thermal units (MMBtu) for gas-intensive industries like steel, petrochemicals and fertilizers, and $ 4.75 per MMBtu for other sectors.
The government’s move ends the support it had given to the industrial sector with the spread of the coronavirus pandemic when it had set the price of natural gas at $ 4.5 per MMBtu in an attempt to increase exports.
Global gas prices have increased this year due to growing demand and a shortage of supply. Gas prices in Europe, including the UK, have reached record highs in recent months, while New York Mercantile Exchange (Nymex) futures have doubled, reaching their highest levels since late 2008 .
Ahmed Khalifa, vice president of Evergrow, a leading potash fertilizer company in the Middle East, said the majority of the company’s output will see price increases ranging from $ 6 to $ 10 due to of the decision.
Gas price hikes will also put additional tokens on the shoulders of companies wishing to venture into new overseas markets, Khalifa said, explaining that freight costs have also doubled. This will directly translate into a drastic drop in the profits of exporters who had signed contracts with importers before the increase in transportation and gas costs.
Khalifa noted that electricity prices could also rise, meaning production costs will rise further.
Khaled Abul-Makarem, chairman of the Chemical Industries Export Council, said petrochemicals and fertilizers are among the sectors most affected by rising natural gas prices. Gas is a major component of some fertilizers, essentially constituting up to 80 percent of the product. The scarcity of natural gas in the world will increase the demand for Egyptian products, but since the exporters had already signed contracts based on lower prices, they will either have to cancel old contracts and thus lose their customers, or export their products and bear losses, he added.
The loss margin depends on the amount of gas used in making the product, said Abul-Makarem, stressing that it was a good decision at the wrong time. The increase in the price of natural gas should have taken place later to take it into account in the contracts of the exporters.
Some countries have the power to compete with Egyptian products, he said. Arab oil-producing countries can supply natural gas at lower prices, so their products will cost less than those of the Egyptians, especially in the petrochemical field. Moroccan fertilizers can also compete with those from Egypt, he added.
A number of construction materials companies listed on the Egyptian Stock Exchange have reported the effect of rising natural gas prices on several industries.
Ezz Dekheila Steel of Alexandria said that natural gas is one of the main elements in the production of iron as a raw material. Its price increase will indeed affect the cost of manufacturing, the company said, adding that it is flexible enough to change the amount of raw materials used in the production process.
The South Valley Cement Company expects the cost of production to drop from 30% to 50% due to the recent increase in gas prices, while Qena’s Misr Cement Company has said it relies on coal as its main focus. energy source.
Mohamed Hanafi, head of the Chamber of Metallurgical Industries of the Federation of Egyptian Industries, predicts that the heaviest price will fall on glass, fertilizers and petrochemicals.
Hanafi stressed that the effect of the increase in the price of natural gas on the metallurgical industries will be limited and that the factory owners can cope with the increase without increasing the price of the end product.
The biggest problem, however, will be the effect of rising natural gas prices on power plants.
Tamer Abu Bakr, head of the federation’s energy committee, said industries that heavily use natural gas will increase their prices, but their products will remain cheaper than imported ones as gas prices have increased overseas. at higher rates than in Egypt.
Gas-intensive industries will increase the price of the final product by 15-20%, while sectors that only use natural gas as an energy source will increase their prices by 5-10%, Abu Bakr noted.
* A print version of this article appears in the November 4, 2021 edition of Al-Ahram Weekly