Egypt cement-sector-072009

Global Research
July 2009
Sector
Egypt Cement Sector
Egypt
Against All Odds...

Global Investment House KSCC
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Tel: (965) 22951000
Fax: (965) 22951299
Email: research@global.com.kw
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Faisal Hasan, CFA
Head of Research
fhasan@global.com.kw
Phone No:(965) 22951270
Mahmoud Soheim
Manager-Egypt Research
msoheim@globalinv.com.eg
Phone No: (202) 37609526
Ahmed Abu Hussein, CFA
Financial Analyst
aabuhussein@globalinv.com.eg
Phone No: (202) 37609526
Radwa Weshahy
Financial Analyst
rweshahy@globalinv.com.eg
Phone No: (202) 37609526

Table of Contents
Investment Summary 1
Global Cement Industry 5
MENA Cement Industry 14
Egypt Cement Industry 28
Valuation and Recommendation 60
Players Profile 63
Sinai Cement Company 64
Misr Cement Qena 81
Misr Beni Suef Cement 98

Global Research - Egypt Global Investment House
Egypt Cement SectorJuly 2009
Investment Summary
The structure of the world cement industry has become more globalized with a small
number of multinational companies dominating the world cement manufacturing capacities.
Moreover, the interaction between the cement market’s supply and demand forces on the
national , regional and international arena, created a new world order.
The world cement industry experienced a period of rapid growth during the past decade,
where the world aggregate cement consumption increased at a CAGR of 7.3% over the period
from 2003-2008. The robust growth in the cement industry came on the back of strong global
economic performance, which was mainly attributable to the vigorous economic activity and
developments in emerging markets, growing at a CAGR of 7.5% over the same period.
The cement industry situation has changed considerably after the global financial crisis,
where the added cement capacities during the past couple of years and the announcement of
multiple new capacities coming on-stream in the next 4 years, mainly in emerging markets,
coupled with the expected slow-down in the construction sector will create an inevitable
oversupply situation in the global cement markets.
The world map of cement has changed dramatically over the past 60 years, where the center of
gravityhasbeenmovingsteadilyawayfromthewesttowardtheEastordevelopingeconomies.
North America and Europe (developed market) share in world cement consumption has been
declining from around 80% in the 50’s to around 20% recently. This trend is attributable
to developing countries’ large population growth, as well as the continuous construction
development plans, including large scale infrastructure and real estate projects and cheap
labor and raw materials.
On the regional level, the MENA region’s cement industry has been expanding remarkably
over the past five years, on the back of the high activity witnessed in the construction sector to
undertake large scale real estate and infrastructure developments, including housing, tourism,
industrial and public projects. MENA region cement consumption has been expanding at a
CAGR of 9.6%, reaching 258.7mn ton in 2008, whereas cement production reached 255.6mn
ton in 2008, achieving a CAGR of 7.6% over the same period.
The MENA region cement production capacity in 2008 is estimated at around 376mn ton,
which is forecasted to increase by 40.5%, reaching around 529mn ton in 2012, according to
the announced expansion plans. Arab Countries cement annual production capacity stood
at 222mn ton, representing 59% of the MENA region’s cement annual production capacity.
Arab Countries cement annual production capacity is expected to increase by 99mn ton over
the next 4 years, reaching 321mn ton.
These huge cement capacities addition in the MENA region coming on stream over the next
years, unluckily coincided with the global economic slowdown and a declining activity in the
construction sector. This situation is expected to create an over-supply in the regional cement
market and trigger price wars, in addition to possible delays in the planned commissioning
dates of the new capacities, shutdowns of some of the inefficient existing capacities and
lower utilization rates.

Egypt Cement Sector July 2009
Therefore, we believe that countries with low cash cost of production per ton will be better
positioned to survive the declining global cement prices and export their excess capacities at
competitive prices.
With respect to the local market, the Egyptian cement industry has been growing vigorously
over the past 5 years, on the back of the high activity experienced in the construction and real
estate sectors. Egypt’s cement consumption has been growing at a CAGR of approximately
6% over the past 40 years. Despite the declining global demand, resulting from the global
financial crisis, cement demand in Egypt continued its robust growth fueled by lower steel
prices, which triggered higher construction activity.
The Egyptian grey cement sector consists of 13 cement manufacturing companies, of which 9
companies are controlled by 6 multinational companies. At the end of 2008, Egypt’s cement
production capacity reached 43.3mn tons, compared to 41.8mn ton in 2007, recording a
growth rate of 3.9%. Egypt cement production capacity is expected to add around 18.5mn tons
between 2009 and 2011, growing at a CAGR of 12.6% over the next 3 years. Accordingly,
Egypt cement production capacity will come very close to 62mn ton.
The government intervention in the cement industry through increasing energy prices for
energy intensive industries, including cement, harmed the competitive edge of the Egyptian
cement sector, for its relatively low cost of production. In addition, banning cement exports
could jeopardize the position of the Egyptian cement in export markets, yet we believe the
negative effect will be marginal, as Europe, which represents Egypt’s main export market, is
witnessing a severe decline in demand.
Finally,webelievethatEgypt’scementsectoroutlookispositive,onthebackofthecontinuing
activity in the construction sector. The growth in the construction sector is expected to be
driven by the government plan to boost investments in infrastructure projects, as well as low
income housing and industrial development projects, in addition to the improvement of under
developed areas in Egypt. Furthermore, the private sector investments in the residential,
commercial and hospitality real estate segments are expected to support the construction
sector, as well.
Table 01: “Global” Valuation Matrix
Company Name
Price
(LE)
Target
Price
(LE) Reco.
Upside
potential
BVPS*
(LE)
EPS*
(LE)
PBV^
(x)
PE^
(x)
Sinai Cement 71.98 107.3 Buy 49.0% 23.77 9.20 1.51 7.83
Misr Cement Qena 78.00 91.3 Buy 17.1% 22.62 11.38 3.46 6.86
Misr Beni Suef Cement 88.49 162.8 Buy 83.9% 42.60 19.29 2.08 4.59
* 2009 projected EPS BV
^ Multiples are based on projected EPS, BVPS last market prices as of June 30th, 2009.
Source: Global Research

July 2009 Egypt Cement Sector
Introduction
The world cement industry experienced a period of rapid growth during the past decade,
where the world aggregate cement consumption increased at a CAGR of 7.3% over the period
from 2003-2008. The robust growth in the cement industry came on the back of strong global
economic performance, which was mainly attributable to the vigorous economic activity and
developments in emerging markets, growing at a CAGR of 7.5% over the same period.
The global front has changed dramatically since mid 2008, as the US economy went into
recession. A liquidity squeeze appeared in the horizon, on the back of defaulting sub-
prime mortgage borrowers, due to easy credit granted to home buyers with a low credit-
worthiness.
In mid-September, the situation deteriorated rapidly all over the world, where a series of
defaults in many financial institutions occurred simultaneously, leading to the world’s worst
financial crisis. Huge stocks sell-off wave hit the world’s markets triggered by investors’
panic, leading to tremendous losses on the global stock exchanges. Although the world
governments’ efforts to curb the downward trend to avoid recession, through adopting
expansionary policies, including lowering interest rates and injecting money in the world
economy, the global financial crisis still persists to date.
The global concurrent economic slow-down will negatively affect consumer demand, which
in turn will drag the growth of the entire sectors of the world economy. The construction
sector, which drives demand on building materials, will not be different and will be adversely
affected by the slowing world economy. In addition, tight credit conditions will act as an
obstacle to real estate developers in the implementation of their planned projects on all fronts,
leading to delay or cancellation of these projects. Consequently, the double effect of a slower
world economy and dry credit markets will negatively affect demand on building materials,
including cement.
The cement industry situation has changed considerably after the global financial crisis,
where the added cement capacities during the past couple of years and the announcement of
multiple new capacities coming on-stream in the next 4 years, mainly in emerging markets,
coupled with the expected slow-down in the construction sector will create an inevitable
oversupply situation in the global cement markets.
Consequently, this will lead to delay in the planned commissioning dates of the new capacities,
shutdowns of some of the inefficient existing capacities and lower utilization rates. However,
there is some good news represented in lower oil and natural gas prices, resulting from
reduced oil demand, which will have the effect of lowering the cement production cost.
Cement demand growth in developed markets, Western Europe and North America, is
expected to decelerate. Whereas, emerging markets cement demand growth is forecasted
to remain positive, although at a slower pace than previously projected before the global
financial crisis.

Therefore, the majority of the new capacities additions are directed to emerging economies,
which are still under-developed and needs a lot of spending on infrastructure projects, in
addition to emerging markets comparative advantage in terms of cost differential, where labor
and energy cost are cheaper and CO2 emission restrictions are lower than in the developed
economies. This will somehow alleviate the pressure on the construction sector, resulting
from the slow-down in the housing sector and mitigate the negative effect on the growth of
the global cement consumption created by developed countries.
Given the new set of circumstances, a new competitive environment will emerge, where
countries with lower cash cost of production will be better positioned to survive the declining
global cement prices and export their excess capacities at competitive prices.
The purpose of this report is to assess the position of Egyptian cement industry within the
context of the global and regional cement industry. We will apply a top-down approach by
exploring the cement market dynamics in each respective market.

Global Cement Industry
The structure of the world cement industry has become more globalized with a small
number of multinational companies dominating the world cement manufacturing capacities.
Moreover, the interaction between the cement market’s supply and demand forces on the
national, regional and international arena, created a new world order.
The cement consumption is cyclical and closely related to the construction industry business
cycle, which in turn is largely determined by the overall macro economic growth. However,
cement is to some extent protected from extreme cycles in the construction industry, because
it is almost used in every type of construction. That is why the cement demand as a building
material is the last to be influenced during economic recessions and the first to benefit from
an economic recovery.
The cement consumption is seasonal throughout the year, where consumption decline in the
winter season due to bad weather conditions. Furthermore, the demand on cement is inelastic
in nature, as a decrease in cement prices will not significantly boost consumption during
a down cycle in the construction sector, as well as an increase in cement prices will not
materially reduce demand throughout a high construction activity period.
The cement industry has some distinctive characteristics. It is a capital intensive industry,
where the typical investment cost of a green field plant with an annual capacity of 1mn ton is
estimated to be in the range of USD150-200mn. In addition, the cement industry is an energy
intensive industry, where the production of one ton of cement requires around 60-130kg of
fuel oil or its equivalent, depending on the cement type and the production process, and about
105kwh of electricity.
The cement industry is closely related to the population, this relationship is intuitive because
the ultimate purpose of any building and construction development activity is to serve people,
whetherintheformofhousing,commercial,industrial,serviceorinfrastructuredevelopments.
The supply curve of cement kept shifting upward in close relation to population, exhibiting a
95.8% correlation between cement production and population.
Chart 01: World Cement production against world population
Source: USGS, U.S Census Bureau Global research
-
500
1,000
1,500
2,000
2,500
3,000
3,500
1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Tonmn
2,500
3,500
4,500
5,500
6,500
7,500
Peoplemn
Cement production Wrold Population

Supply and Demand Analysis
The world cement industry witnessed a stage of rapid growth over the period from 2002-
2007, resulting generally from good economic performance in world economies. The world
GDP growth achieved a CAGR of 4.6% over the same period and a growth rate of 5.2%
in 2007. This growth in the world economy came mainly on the back of strong economic
performance in emerging economies, which were able to achieve high economic growth rate
during the period from 2002 to 2007, growing at a CAGR of 7.4%, compared to 2.7% in
developed economies.
Chart 02: Real GDP growth rates
Source: IMF Global research
Much of the growth in developing countries is attributable to intensive spending in the field
of social development and construction activities, especially in the Middle East and Asian
economies. Consequently, global cement consumption has been growing vigorously over
the past 5 years at a CAGR of 8.7%, reaching 2.76bn tons in 2007 up from 2.57bn tons
consumed in 2006. On the other hand, world cement production responded to this increasing
consumption by growing robustly at a CAGR of 8.5% over the same period, where cement
production reached 2.76bn ton in 2007, compared to 2.57bn tons in 2006.
Chart 03: World cement production and consumption
Source: Cembureau, ICR, USGS Global research
By far China is the world’s largest cement producer and consumer, accounting for about
50% of the world’s aggregate supply and demand. China’s large population of 1.3bn people,
besides the massive numbers of infrastructure projects and continuing urbanization are the
driving forces behind its tremendous cement consumption and production quantities. The
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008
World Developed Economies Developing Economies
2,200
2,371
2,619
2,814
2,872
2,185
2,342
2,568
2,763
2,857
1,000
1,500
2,000
2,500
3,000
2004 2005 2006 2007 2008
Tonmn
Production Consumption

second largest producer and consumer of cement is India with a population of 1.1bn people
and substantial housing and infrastructure development projects.
Chart 04: World cement 2008 by region
Source: Cembureau, ICR Global research
The world map of cement has changed dramatically over the past 60 years, where the center of
gravityhasbeenmovingsteadilyawayfromthewesttowardtheEastordevelopingeconomies.
North America and Europe (developed market) share in world cement consumption has been
declining from around 80% in the 50’s to around 20% recently. This trend is attributable
to developing countries’ large population growth, as well as the continuous construction
development plans, including large scale infrastructure and real estate projects and cheap
labor and raw materials.
Chart 05: Growth in World cement consumption in developed vs. developing countries
Source: Cembureau, ICR, USGS Global research
The world has changed dramatically after the emergence of the financial crisis in the United
States and its rapid spillover effect all over the world. Deteriorating credit markets and tight
credit conditions prevailing around the globe, as well as slower economic growth will act as
major drags on the construction and building materials sectors, in terms of lower demand and
hard project financing.
The strong performance of the world cement industry over the past half decade is believed to
come to an end, as the world cement consumption increased by 3.4% in 2008, compared to
7.6% in 2007, whereas the world cement production achieved a growth rate of 2.1% in 2008
against 7.4% in 2007. Therefore, we believe that the world cement industry already started its
down cycle, which is expected to prevail at least during the coming year, if not longer.
China,
49.1%
Others, 5.2%
Asia Paciﬁc, 18.3%
Europe, 9.5%
Americas, 9.0%
MENA, 8.9%
Others, 5.8%
Asia Paciﬁc, 18.4%
Europe, 9.0%
Americas, 9.1%
MENA, 9.1%
China,
48.7%
-15%
-10%
-5%
0%
5%
10%
15%
20%
2005 2006 2007 2008
World Developed Countries Developing Countries

The decline in world cement consumption was mainly attributable to developed economies’
weak demand, which is estimated to be decreased by around 9.6% in 2008, compared to a
decline of 1.7% in 2007. Although, cement demand in developing economies is estimated
to decrease too, it is still on the positive side, growing by a moderate 5.9% in 2008, against
a 9.6% in 2007. The continuing construction spending in emerging economies will offset the
negative cement demand growth witnessed in developed countries.
Chart 06: World expected cement demand by region
Source: Global research
Moreover, an examination of how the growth in cement production evolved historically over
the past 60 years can provide us with some insight on where the global cement industry is
heading. As indicated in chart 07, we plotted the growth in cement production for different
time periods for years 2007 and 2008. We found that the trend line for 2008 different periods
CAGR shows a flatter slope than the trend line for 2007, which supports our previous
argument that the cement industry entered a period of slowdown.
The cement industry production achieved a growth rate of 7.4% over 2007, compared to
2.1% in 2008, which is even lower than cement production long term growth. Therefore, we
believe that the cement industry will grow at its long term average growth rate in the range
of 4.5 to 5% over the short term, before rebounding again when the world economy starts to
recover.
Chart 07: World cement production CAGR for different periods
Source: USGS Global research
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
80 years 50 years 25 years 20 years 15 years 10 years 5 years 1 year
2007 2008 Trend 2008 Trend 2007

Cement Pricing
The world average cement prices have been growing at a CAGR of 5% over the past 4 years,
reaching an average of US$105-110/ton in 2008, compared to US$85-90/ton in 2004. This
robust growth in cement prices came mainly on the back of the rapid growth in cement
demand, especially from emerging markets as we explained earlier, in addition to the rising
international energy prices, particularly the prices of steam coal and petcoke, which represent
the main energy source in the cement industry.
Chart 08: Australia -New Castle Steam Coal FOB price
Source: World Bank Global Research
The production cost of cement varies significantly from one country to another, depending
on the availability and cost of energy, raw materials and labor. As long as energy cost is
the largest contributor to the cement’s production cost, cement producers in countries with
lower cost of energy will have a competitive advantage over their counterparts. In addition,
environmental regulations and carbon dioxide (CO2) restrictions in some countries will
add an incremental cost to the overall production cost. As an example for these restrictions,
Europe’s current CO2 price is EUR25 per ton of clinker produced.
On average, energy cost represents around 30% of the cement total production cost. Keeping
all other things constant, a rise in energy cost will be translated into higher production cost,
causing cement manufacturers to increase their selling prices in order to maintain their target
profit margins. The extent to which the cement prices will respond to an increase in energy
cost will depend primarily on the prevailing conditions in the construction market, which
directly affects demand for cement.
Capacities Additions
The world new cement capacity additions experienced a period of significant growth to cope
with the increasing cement consumption. This trend is evidenced by the large increase in the
contracted cement kiln capacities, achieving a CAGR of 33.5% for the period 2003-2008.
Given the annual contracted new cement kiln capacities globally excluding China, as indicated
in chart 09, and the fact that a time period of 2-3 years is needed between the contract award
and the commissioning of production, we can forecast that around an additional 400mn ton
of cement capacities will come on stream outside China during the next 3 years.
0
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Jan-06
Apr-06
Jul-06
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Oct-08
Jan-09
US$/ton

10 Egypt Cement Sector July 2009
Chart 09: New Global contracted cement kiln capacities (excluding China)
Source: FLSmidth Global Research
However, new cement capacities annual order book declined in 2007 and 2008 by 10.7%
and 1.6%, respectively, reflecting cement producers concern regarding the coming 2-3 years
outlook of the world cement consumption. This implies that the growth in cement consumption
during near future is expected to grow at a slower pace compared to the previous robust 5
years.
An analysis of the distribution of the annual contracted order book among different
regions shows that around 90% of the contracted new capacity additions were originated
from developing countries, especially from MENA region and India, against only 10% in
developed markets.
The shift in cement manufacturing toward the Eastern hemisphere was mainly driven by tight
supply conditions and escalating demand environment, on the back of increasing population
and continuous development of immature housing and infrastructure projects, which remain
a fundamental driver for growth. The supply/demand imbalance in emerging markets enabled
cement producers to command higher prices and enjoy higher profitability, which created
surplus funds available for investment and further capacity expansions.
Furthermore, emerging markets have a competitive advantage with respect to production cost
and price differential, which is considered another reason encouraging cement producers to
shift east. Access to cheap labor and energy cost, as well as relaxed environmental regulations
were two main factors contributing to the lower production cost in emerging markets. In
addition, high cement prices in developed markets compared to emerging markets, with the
exception of Africa due to limited supply and dependence on imports, created the basis for
exports to developed markets at competitive prices.
Moreover, Chinese equipment manufactures provide cement plant projects at lower cost. The
Chinese Sinoma Company is able to provide turnkey projects at approximately 30% less than
European suppliers. Therefore, the return on invested capital for cement producers employing
the Chinese technology for a typical 1.5mn ton cement plant reaches 16%, compared to 10%
for an identical plant build by any European supplier. It is worth mentioning that Sinoma had
a market share of 34% in 2008, taking the lead for the first time from FLSmidth.
0
20
40
60
80
100
120
140
160
2004 2005 2006 2007 2008
Tonmn
Middle East Africa Asia (excl. China) Europe N. America S. America
43.1%
86.7%
-10.7%
-1.6%

July 2009 Egypt Cement Sector 11
Chart 10: Cement plants equipment suppliers market share 2008
Source: FLSmidth Global Research
The emergence of the financial crisis and its negative consequences on the construction
sector, especially in the developed markets, resulted in capacity reduction and projects delay,
as well as exacerbating the move of the new cement capacities to the emerging markets. In
Developed markets, companies will focus on vertical integration into ready-mix concrete and
aggregates, as a strategy to protect their market share and profitability.
Lafarge, the world largest cement producer, modified its 2006-2010 initial global capacity
expansion plan down from 60mn ton to 48mn ton and extended the plan time horizon by 1
year to end in 2011. In addition, Lafarge re-allocated the planned 10% capacity expansion in
developed countries in its initial plan, to become 100% directed toward emerging markets.
In addition, major multinational players are expected to abandon merger and acquisition
activity during 2009, as they will focus mainly on cash flow generation and achieving a sound
liquidity position through cost optimization, applying a conservative investment approach and
keeping low leverage. However, cement manufacturers emerging from developing countries
are serious competitors to the traditional industry leaders. These emerging market players
are gaining momentum and increasing control over the cement industry, on the back of high
profitability making them cash rich companies eager for growth and willing to diversify
abroad.
A new competitive environment will emerge in the global cement industry, where countries
with lower cash cost of production will be better positioned to survive the declining global
cement prices and export their excess capacities at competitive prices.
Trade
Generally, cement is not an export oriented product because it is a heavy and low value
product. Therefore, cement transportation cost is considered an important factor in
determining its import/export destinations world-wide. Consequently, the world total cement
trade represented only 6-8% of the world total consumption over the period from 1999 to
2008.
Polysius (Germany), 14%
KHD (Germany), 7%
Others, 13%
FLSmidth (Denmark), 32%
Sinoma (China), 34%

Chart 11: Cement world trade
Source: Ocean Shipping Consultants, Clarkson, ICR Global Research
The United States of America is the largest importer of cement in the world. However, the
volume of cement imports to the United States has been significantly slashed by 33.2% and
42.8% in 2007 and 2008, respectively. This decline resulted from the construction sector
slow down, which mainly came on the back of weakness in the housing segment. On the other
hand, China is the world’s largest cement exporting country, thanks to its huge capacities,
which produce around 50% of the world cement production, and its competitive cement
selling prices of approximately US$55/ton.
Cement Seaborne Shipping is much more economically than inland shipping, allowing
cement to travel very long distance at lower cost. Therefore, seaborne shipping has the lion’s
share in global cement trading, where around 80% of total cement trading is shipped by sea.
However, seaborne cement trading accounted for a small percentage of the world dry bulk
shipments amounting to 4.5% of in 2007 and it is estimated to be 4.2% in 2008.
Chart 12: World dry bulk shipments
Source: Clarkson Global Research
The bulk carrier freight rates, which are determined by factors outside the cement sector,
including fleet supply, seasonal factors and bunker price (carrier fuel), can change the cost
competitiveness of one country compared to others in global markets.
The international seaborne dry bulk freight rates, as measured by Baltic Dry Index (BDI), which
provide an assessment of the price of moving the major raw materials by sea, has witnessed a
dramatic drop by around 93% since late May 2008 till the end of December 2008, back to its
2005 levels. However, the index started to recover some of its losses since early 2009.
-
20
40
60
80
100
Tonmn
120
140
160
180
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008E
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
World cement trade Seaborne trade % of global consumption
Iron ore, 25.9%
Coal, 26.1%
2007
Steel products, 8.9%
Others, 14.9%
Phosphate rock, 1.1%
Grains, 10.0%
Bauxite/ Alumina, 2.8%
Cement, 4.5%
Forest Products, 5.8%
Steel products, 8.9%
Grains, 9.9%
Bauxite/ Alumina, 2.7%
Cement, 4.2%
Forest Products, 5.6%
Iron ore, 27.2%
Coal, 25.7%
Others, 14.8%
Phosphate rock, 1.0%
2008E

Chart 13: Baltic Dry Index
Source: Bloomberg Global Research
The current financial turmoil along with the global economic slow-down, especially in
developed economies, will result in reduction in the global cement consumption growth.
Therefore, the volume of global cement trading is expected to be negatively affected, as most
of the cement volumes are forecasted to be produced and consumed locally, whereas cement
trading will be mainly concentrated in the Eastern hemisphere, where demand still exists.
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
3-Jan-05
3-Apr-05
3-Jul-05
3-Oct-05
3-Jan-06
3-Apr-06
3-Jul-06
3-Oct-06
3-Jan-07
3-Apr-07
3-Jul-07
3-Oct-07
3-Jan-08
3-Apr-08
3-Jul-08
3-Oct-08
3-Jan-09
3-Apr-09

MENA Cement Industry
For the purpose of the report, the Middle East and North Africa (MENA) region is represented
by 20 countries, including 18 Arab countries and 2 non-Arab countries, as follows:
- Gulf Co-operation Council (GCC) Countries; Bahrain, Kuwait, Oman, Qatar, Saudi
Arabia and United Arab Emirates (UAE).
- The Arab Peninsula; Iraq, Yemen and the GCC region.
- The Levant; Jordan, Lebanon, Syria and Palestine.
- North Africa; Algeria, Egypt, Libya, Morocco, Sudan and Tunis.
- Non-Arab Countries; Iran and Turkey. They are added to the MENA region because they
are considered major cement producers.
Table 02: MENA economic indicators 2008e
Country
GDP
growth
Population
(mn.)
GDP per
capita (US$)
Inflation rate
(End of
period)
ArabCountries
ArabPeninsula
GCCregion
Bahrain 6.3 0.78 25,245 10.5
Kuwait 5.9 3.44 46,397 9.0
Oman 7.4 2.60 21,704 10.0
Qatar 16.8 1.10 106,460 15.0
Saudi Arabia 5.9 24.90 21,221 11.5
United Arab Emirates 7.0 4.76 56,667 12.9
Iraq 9.8 28.22 3,324 6.8
Yemen 3.5 22.98 1,199 15.9
TheLevant
Jordan 6.0 5.85 3,267 16.1
Lebanon 6.0 3.80 7,376 8.7
Syria 4.2 19.88 2,238 8.0
Palestine 0.8 2.41 2,758 11.5
NorthAfrica
Algeria 4.9 34.80 4,922 4.2
Egypt 7.2 75.05 2,109 20.2
Libya 7.1 6.21 17,468 12.0
Morocco 6.5 31.18 2,902 3.9
Sudan 8.5 38.13 1,631 12.0
Tunis 5.5 10.36 4,032 4.7
Non-Arab
Countries
Iran 5.5 72.87 5,247 24.0
Turkey 3.5 69.69 11,463 10.9
Source: IMF, CIA and Global Research
Sector Drivers
Economic Activity
The MENA region is endowed with a substantial energy reserve, where more than 66%
of the world’s crude oil reserve exists and around 47% of the global natural gas reserve is
located. Accordingly, the hydrocarbon sector is a main contributor to MENA’s economy,

especially for oil-exporting countries, such as Saudi Arabia, UAE, Kuwait, Algeria, Libya
and Iran. Other countries including Egypt, Morocco, Tunis, Oman and Jordan are not mainly
dependent on the hydrocarbon sector and have more diversified economies.
Chart 14: Global Oil and Natural Gas proven reserves (end of 2008)
OIL Natural GAS
Source: BP Global Research
The overall MENA region witnessed a period of strong economic performance, growing at
a CAGR of around 5.3% over the past 5 years. Economies were expanding vigorously on all
fronts, following the global growth trend, achieving a growth rate of 5.8% in 2008, the same
as 2007. MENA oil-exporters economic growth rate declined from 6.4% in 2007 to 5.8%
in 2008, resulting from slower domestic demand growth in Iran. However, GCC economic
growth reached 6% in 2008 from 4.1% in 2007. On the other hand, MENA diversified
economies achieved an economic growth rate of 5.7% in 2008, compared to 3.8% in 2007.
Chart 15: MENA GDP growth rate
The significant surge in the international food and oil prices starting in 2007 to mid 2008
caused inflation rate to exceed the 10%-mark in the majority of MENA countries. Crude
oil prices reached almost US$145/barrel in mid 2008 from around US$55/barrel at the
beginning of 2007. This remarkable increase in oil prices created surplus liquidity mainly in
oil exporting countries, especially the GCC economies.
On the other hand, more diversified economies, which are dependent on food and oil imports,
experienced a decline in their current account balances as a percentage of GDP, due to higher
cost of imports.
Saudi Arabia, 21.0%
Iran, 10.9%
Iraq, 9.1%
Kuwait, 8.1%
UAE, 7.8%
Other MENA, 8.4%
Rest of the
World, 34.7%
Iran, 16.0%
Qatar, 13.8%
Saudi Arabia, 4.1%
UAE, 3.5%
Algeria, 2.4%
Other MENA, 5.7%
Rest of the
World, 54.5%
3.8%
5.7%
4.0%
5.7%
6.4%
5.8%
3.9%
5.0%
4.1%
6.0%
4.3%
6.0%
5.8%
5.8%
3.9%
5.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2007 2008e 2009f 2010f
MENA Diversiﬁed MENA Oil Exporters GCC MENA

Chart 16: MENA current account position as percentage of GDP
The governments of the GCC countries utilized these excess funds to diversify their economies
to become less dependent on the oil and gas sector, as they invested a substantial amount
of these excess petrodollars in society development, such as real estate and infrastructure
projects, in order to attract private investments, which were primarily directed to develop
high-end housing, commercial and tourism schemes, as well as industrial project. These large
scale multi-facet development projects on all fronts, as well as infrastructure developments
created a great demand for building materials, including cement.
The world economic slowdown, resulting from the manifestation of the global credit crunch,
which started in mid September 2008, negatively affected MENA economies. The direct effect
of the crisis was relatively mild, compared to developed economies, as financial institutions in
MENA region were not large holders of subprime mortgage securities. However, the vulnerability
of MENA economies to the ripple effect of the financial crisis was more severe than its direct
effect, with respect to shrinking global demand, squeezing liquidity and falling stock markets.
Therefore, MENA countries economic growth are expected to slowdown, on the back of
lower revenues, resulting from weak demand for the region’s exports and tourism, falling oil
prices and tight credit conditions. This will lead to decline in investment spending, which will
result in scaling down and postponement of ambitious investment projects.
Oil exporting countries current account position will be negatively affected, as receipts from
hydrocarbons were slashed, on the back of falling crude oil prices, reaching around US$45/
barrel from a peak of US$145/barrel in mid-2008. On the other hand, diversified economies will
benefit from lower commodity and oil prices, as their current account position will improve.
It is worth mentioning that oil price is an essential key factor affecting the region’s economy,
as well as the world economy. Therefore, any decision by the region’s main oil exporting
countries, which are also members in the Organization of the Petroleum Exporting Countries
(OPEC), to cut oil production to set a floor under oil prices will play a major role in shaping
the region’s growth profile.
Population
Population is one of the main determinants of cement consumption. As any construction
activity undertaken to develop any type of real estate or infrastructure project, is implemented
to serve the people whether in form of housing, tourism or public services projects. MENA
14.9%
19.2%
-1.2%
12.8%
17.2%
-3.6%
13.5%
18.7%
-7.3%
6.0%
8.0%
-0.7%
4.1%
5.4%
0.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
MENA MENA Oil Exporters MENA Diversiﬁed
2006 2007 2008 2009 2010

region has a large population base, with a total population of around 461mn people, growing
at a CAGR of 2% over the past 10-year period.
Population in the MENA region is expected to grow by its historical annual average rate until
it reaches approximately 507mn people in 2013. Furthermore, MENA region has favorable
population segmentation with around 39% of its population are young and less than 18 years
old, which ensures strong demand on housing and utilities development projects.
Chart 17: MENA historical and forecasted population
Source: IMF, US Census Bureau Global Research
Arab Countries contribute to around 69% of total MENA population, with a total population
of 318mn people in 2008, compared to 142mn people in non-Arab countries. North Africa
was the greatest contributor with a share of 43% of total MENA population.
Chart 18: MENA Population distribution 2008
Source: IMF, US Census Bureau Global Research
Construction activity
The MENA region’s construction activity has been expanding vigorously over the past years
to develop large scale real estate and infrastructure projects. Generally, this high level of
activity in the construction sector came on the back of the good economic performance all
over the MENA region, as well as different governments’ hefty investments, through the
public sector to develop immature housing and infrastructure projects to upgrade the living
standards and social services offered to the increasing population. Moreover, the contribution
of the private sector to this construction boom was mainly focused on the development of
luxurious residential, commercial and leisure schemes.
-
100
200
300
400
500
600
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Populationmn.
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
MENA population MENA population Growth
The Levant, 7%North Africa, 43%
Non-Arab Countries, 31%
GCC, 8%
Yemen, 5%
Iraq, 6%
Arab
Peninsula,
19%

The GCC region witnessed the highest level of construction activity in the MENA region,
driven by two main factors; the high oil prices, which created a surplus liquidity, and
willingness to diversify their economies to become less dependent on the hydrocarbon
sector.
The world economic recession resulting from the outbreak of the global financial crisis and
the subsequent free fall in the world oil prices, as a consequence of slower global demand,
negatively affected the liquidity levels of oil dependant economies. Moreover, dry credit
market conditions worsened the situation even more, with project financing became very
hard to obtain, as banks willingness to finance real estate projects disappeared. This situation
has adversely affected the construction activity, leading to a slowing-down in the sector
and downsizing and rescheduling of ambitious development plans. Accordingly, demand on
building materials decreased, leading to a decline in their prices.
According to data published by MEED, the Gulf region, which includes GCC, Iraq and Iran,
projects’ value in March 2009 reached US$3.1bn, growing at a CAGR of around 10% over
the past 10 quarters. Although the total projects’ value increased by 16.5% during the last
quarter in 2008, it advanced only by 5% in the first quarter of 2009. The large increase in
the projects’ value in the last quarter of 2008 came on the back of the stimulus packages
announced by the governments to invest in infrastructure projects, in order to counter attack
the slowdown resulting from the financial turmoil.
Chart 19: Gulf region projects value against their growth rate
Source: MEED Global Research
The value of the projects in itself is promising and assures a good activity in the broad
construction sector over the next years. However, the two crucial questions are how many
projects will find their way to the light with the current liquidity constraints and falling
demand and how such projects are distributed among different economic sectors.
We believe that the coming period will determine the destiny of many projects, where
infrastructure and economically feasible projects with adequate financing will be the surviving
projects, although they may witness some delays relative to their original completion dates.
On the other hand, projects that are speculative in nature, mainly luxurious real estate projects,
will be the ones that are more likely to witness cancellations.
The UAE has the largest construction market worth US$1.23bn, representing around 42% of
the Gulf region projects’ value, where some 80% of the UAE planned activity is in the real
-
500
1,000
1,500
2,000
2,500
3,000
3,500
Dec.
2006
Mar.
2007
Jun.
2007
Sept.
2007
Dec.
2007
Mar.
2008
Jun.
2008
Sept.
2008
Dec.
2008
Mar.
2009
US$mn.
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Projects value Growth

estate construction segment. Therefore, the UAE vulnerability to the negative consequences
of the credit crunch is much harsher than other countries in the region. There are around
US$335mn worth of projects on hold, representing 25% of UAE projects’ value and even on-
going projects were rescheduled with extended time frames and minimal work force because
of lack of funding and lower population projections, due to downsizing of the expatriate work
force.
Chart 20: Gulf region projects breakdown by country on March 2009
Source: MEED Global Research
The decline in building material prices, which is considered a positive factor in stimulating
the construction sector, was not enough to fuel more real estate investments due to declining
demand and the severe lack of funds to finance projects, in addition to that the fiscal budget
of oil exporting countries, mainly GCC, came under pressure due to lower oil prices.
Although the construction sector is under pressure, the governments still have the ability
to ease strain on a slowing down construction sector by injecting funds to stimulate the
economic activity. Therefore, many governments in the region adopted stimulus package
plans to enhance their economies, mainly through increasing public spending on society
development projects, such as schools, universities, hospitals and infrastructure projects, as
well as injecting fresh money in the troubled financial system .
Data shows that merely the top 12 infrastructure projects in the MENA region will cost around
US$55bn, to be implemented during the coming years. This level of expected expenditure on
infrastructure projects should provide a good level of assurance that the construction activity
in the overall MENA region is not expected to fall sharply. However, the construction activity
will vary from one country to another. Accordingly, MENA demand on building materials is
not expected also to decline severely.
Oman, 3.5%
Qatar, 7.1%Saudi Arabia, 20.7%
UAE, 41.9% Iran, 9.7%
Bahrain, 2.2%
Kuwait, 9.9%
Iraq, 5.0%

Table 03: Top 12 railway and road mega projects
Project Country
Value
(US$ bn) Scope Status
Completion
Date
GCC rail network GCC region 14 3,000km rail network connecting
the 6 GCC countries
Planning 2016
Kuwait national rail network Kuwait 6.6 505km railway linking Saudi borders
in the south with Iraqi borders in the
north though Kuwait cities
Planning 2014
Land bridge Saudi Arabia 6.6 1,155km railway linking port cities
of Jeddah, Dammam and Jubail
through Riyadh
Developer
selection
2011
Makkah-Madina railway Saudi Arabia 6 440km railway linking the 2 holy
cities of Makkah and Madina with
Jeddah
Contract
awarded
2012
Mina-Arafa railway Saudi Arabia 5.3 The railway will link the Holy city
of Makkah with Mina, Muzdalefa
and Arafat
Contract
awarded
2013
UAE railway UAE 3 9000km high speed railway linking
all the 7 emirates together
Planning 2015
Total railway projects 41.5
Friendship causeway Bahrain/
Qatar
4.2 45km road and railway linking
Bahrain and Qatar
Contract
awarded
2013
Subiya Causeway Kuwait 3.7 36km bridge linking between
Kuwait city and Subia peninsula
Planning 2016
Red Sea bridge Yemen/
Djibouti
2 27km road and railway linking the
Arabian Peninsula and Africa
Planning 2020
Jamarat bridge Saudi Arabia 1.5 Expansion of the Hajj bridge in Mina Construction 2009
Persian Gulf bridge Iran 1 Bridge linking Qeshm island with
Iranian mainlan
Planning 2014
Island bridges UAE 1 20 bridges linking islands of
Suwwa, Reem and Umlafaine
Contract
awarded
N/A
Total road projects 13.4
Total rail road projects 54.9
Source: MEED, Zawya Global Research
Regulations
The cement industry is highly regulated, as it is subject to high level of intervention by most
the region’s governments. The reason behind this is that cement is considered a strategic
commodity, as it is an essential building material for all and every kind of society construction
and infrastructure development activity.
Therefore, different governments across the region issued various regulations on their
respective local cement markets to regulate trading of cement, with the objective of prioritizing
meeting local demand and controlling local selling price of cement.
In Saudi Arabia, cement prices soared from an average of US$67/ton in 2007 to over
than US$100/ton, on June 2008. In turn, the Ministry of Commerce and Industry (MOCI)
imposed a ceiling on the factory price of cement at SR250/ton (US$68/ton). In addition, the

government banned all cement exports effective June 2008, following growing complaints
from contractors and individuals that traders are directing cement for exports, attracted by
higher profit. On May 25th, 2009, cement export ban was removed on condition that cement
companies abide by the government decision to sell each bag of cement on the local market
for SAR10 (US$2.67).
It is worth mentioning that, Eastern Province Cement Company decided to shut a production
line, which produces 3,500 ton per day, for four months (for a lengthy maintenance), as the
government decision to ban exports has inflated the Company’s stockpiles. However, Saudi
Arabia decision to remove export ban, was driven by two reasons, the current high level of
inventory and the expected new capacities additions.
Table 04: Main government regulations
Country Regulations Effective date
Egypt Price cap of US$58.5/ton August 2006
Export duty of US$12/ton February 2007
Export duty of US$15/ton August 2007
Export ban March 2008 to September 2008
Removal of export duty of US$15/ton October 2008
Allowing imports April 2009
Export ban April 2009 to August 2009
Saudi Arabia Price cap of US$68/ton June 2008
Export ban June 2008
Removal of export ban May 2009
UAE Price cap of US$81/ton 2007
Price cap of US$99/ton 2008
Reintroduction of 5% imports duty February 2009
Oman Export duty US$78/ton June 2008 until now
Syria Price cap of US$130/ton February 2009 until now
Iran Export ban May 2008 to December 2008
Price cap of US$50-60/ton July 2008
Export Duty US$100/ton July 2008 to December 2008
Price cap of US$65/ton January 2009
Source: ICR, Reuters Global Research
On the other hand, UAE government decided to set cement price at US$81/ton in 2007.
Price cap was further raised to US$94/ton and again to around US$99/ton in 2008. The surge
witnessed in cost of raw materials and fuel coupled with supply shortage pushed cement
prices to a record high. Accordingly, the Ministry of Economy signed an agreement with
producers to increase production and remove import duties, as well as reducing port handling
fees on May 2008. Later in February 2009, import duties of 5% were reintroduced to protect
local manufacturers, as well as avoiding oversupply in the market.
During March 2008, Oman two cement companies along with the Oman Chamber of
Commerce and Industry (OCCI) agreed to increase the retail price of cement by OMR0.20 to
OMR1.50 per bag equivalent to OMR30.0 per ton (US$78.0/ton) for cement manufacturers,
effective June 1st, 2008.

In 2008, the Syrian Prime Minister decided to extend, until June 2009, the permission to
import cement to satisfy the rapidly growing demand. This decision is revised on June of
every year. On February 2009, the Syrian government decided to fix the cement price at
US$130/ton, in order to protect the local producers, from the notably cheaper imported
cement from countries with lower production cost.
Moreover, the Iranian government banned producers from exporting cement because of
concerns to witness a local shortage, effective May 2008. However, recently established
plants were allowed to export a proportion of their production to cover bank repayments
and other debt, but have to pay an export tax duty of US$100/ton, which was imposed by
the government on July 2008. Additionally, Iran government has enforced a US$50-60/ton
cement price, as the black market price was more than double the ex-work price, effective
July 2008.
On January 2009, the government has decided to eliminate the US$100/ton export duty,
as the local supply and demand were almost balanced, after new plants started production.
Additionally, exports will only be allowed as long as the price of cement in Iran does not
exceed a maximum of US$65/ton.
Concerning Egypt the latest set of regulations were issued by the Minister of Trade and
Industry in April 2009, to control local cement prices including, banning cement exports for
4 months, reduction of cement imports clearing period from 30day period to 3-day period,
as well as obliging cement producers to print their selling prices on cement bags for all
distribution channels, including end-user price. Further details regarding regulations in the
cement market will be discussed later under Egypt’s cement sector.
Supply and Demand Analysis
The MENA region’s cement industry has been expanding remarkably over the past five
years, on the back of the high activity witnessed in the construction sector to undertake large
scale real estate and infrastructure developments, including housing, tourism, industrial and
public projects. MENA region cement consumption has been expanding at a CAGR of 9.6%,
reaching 258.7mn ton in 2008, whereas cement production reached 255.6mn ton in 2008,
achieving a CAGR of 7.6% over the same period.
Chart 21: MENA cement production and consumption
Source: Arab union for Cement and Building Material (AUCBM), ICR Global Research
164
177
201
225
242
259
177
188
202
222
240
256
-
50
100
150
200
250
300
2003 2004 2005 2006 2007 2008
Tonmn
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
Consumption Production Consumption growth Production growth

Turkey is considered the largest cement producer in the region, producing 20.1% of the
region’s total cement production in 2008. Iran produces around 17.4% of the region’s cement
production and comes in the second place, followed by Egypt, which produced almost 15.5%
of MENA cement production in 2008. Saudi Arabia and UAE ranked the fourth and fifth
biggest cement producers in the region in 2008, manufacturing around 12.9% and 6.3%,
respectively.
Chart 22: MENA countries cement production and consumption 2008
Source: Arab union for Cement and Building Material (AUCBM), ICR Global Research
On the consumption front, Iran is the largest cement consumer in the region, consuming around
17% of the region’s cement consumption, followed by Turkey, which consumed 15.7% of
the region’s cement consumption in 2008. Egypt took the third place with approximately
14.8% of MENA cement consumption in 2008. In addition, Saudi Arabia and UAE came
as the fourth and fifth biggest cement consumers in the region in 2008, consuming around
11.5% and 7.7%, respectively.
Chart23:MENAcountriesCementperCapitaConsumption(CPCC)Vs.5yearCPCCCAGR
Source: AUCBM, ICR Global Research
Further analysis of the cement consumption data with respect to Cement Per Capita
Consumption (CPCC) and its respective CAGR over the past five years reveals that all Arab
countries average CPCC stands at 490kg, with a CAGR of 8% over the previous 5-year
period, compared to a CPCC of 593kg and a CAGR of 6.3% over the same period in non-
Arab countries. Collectively, the MENA region average CPCC recorded 519kg, achieving a
CAGR of 7.4% over the past half decade, relative to a world average CPCC of 426kg and a
CAGR of 6.1% over the past 5 years.
1.6
2.2
4.2
3.0
32.9
16.0
2.8
3.1
4.1
4.7
5.4
-
16.5
39.7
5.2
11.2
0.2
6.9
44.4
51.4
1.5
5.0
3.5
2.5
29.9
20.0
8.0
5.3
4.5
3.5
6.7
2.0
14.0
38.4
8.0
12.5
2.6
6.3
44.0
40.6
0
10
20
30
40
50
60
Bahrain
Kuwait
Oman
QatarSaudiArabia
UAE
Iraq
Yemen
Jordan
Lebanon
Syria
Palestine
Algeria
Egypt
Libya
M
orocco
Sudan
Tunis
Iran
Turkey
Tonmn
B
ahrainK
uw
ait
O
m
an
Q
atarSaudiA
rabiaU
A
E
Iraq
Yem
en
JordanLebanon
Syria
PalestineA
lgeria
Egypt
Libya
M
oroccoSudan
Tunis
Iran
Turkey
4%
9%
1%
16%
-1%
3%
16%
40%
9%
13%
1%
-3%
10%
7%
15%
6%
6%
3%
6%
6%
(500)
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
CPCC(kg.)
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
CPCC (kg.) GCC avg. CPCC MENA avg. CPCC 5 year CAGR

GCC countries have the highest CPCC figures in the MENA region, recording an average
of 1,660kg in 2008, with a CAGR of 7.4% over the period from 2003-2008, resulting from
the high level of construction activity experienced in the GCC region. UAE has the highest
CPCC in the MENA region, reaching 4,200kg in 2008. It is worth mentioning that Libya
CPCC is in the same level as some GCC countries. Other countries in the MENA region
CPCC figures hover around the region’s average CPCC, with the exception of Iraq, Syria,
Yemen and Sudan, which are far below the MENA region’s average.
We believe that countries with a large population base and relatively lower CPCC will have
a good potential for cement consumption growth on the long-term. Countries under this
category are Sudan, Yemen, Iraq and Syria. On the other hand, GCC countries CPCC is not
sustainable on the long term, given their low population base, except for Saudi Arabia, which
has a much larger population compared to other GCC countries.
Capacities
As aforementioned, the strong economic performance witnessed in the MENA countries has
encouraged more investments in real estate and infrastructure development projects, which
in turn created high demand for building materials. Therefore, cement producers around the
MENA region planned to raise their production capacities to meet the growing demand.
The MENA region cement production capacity in 2008 is estimated at around 376mn ton,
which is forecasted to increase by 40.5%, reaching around 529mn ton in 2012, according to
the announced expansion plans. Arab Countries cement annual production capacity stood
at 222mn ton, representing 59% of the MENA region’s cement annual production capacity.
Arab Countries cement annual production capacity is expected to increase by 99mn ton over
the next 4 years, reaching 321mn ton.
Chart 24: MENA countries current and forecasted annual cement production capacity
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Arab Union for Cement and
Building Materials (AUCBM), Cement Companies and Global Research
Egypt,SaudiArabiaandUAEareimplementingconsiderablecapacityexpansionplan,contributing
around 32% of the new capacity expansion in the MENA region, in order to meet the growing
local demand. Egypt is projected to add around 18.5mn ton, increasing its annual production
capacity from 43mn ton in 2008 to 62mn ton in 2012. In addition, Saudi Arabia is expected to
increase its cement annual production capacity by 27%, reaching 61mn ton in 2012, compared to
48mn ton in 2008. Similarly, UAE is forecasted to lift its annual production capacity by 17mn ton
by 2012, representing 56% increase from 2008 production capacity level of 30mn.
60.0
43.3
48.0
30.0
16.2
19.0
8.0
6.0
4.5
7.7
4.8
0.7
4.7
3.0
2.6
0.5
113.5
61.8
61.2
46.8
26.0
23.1
15.0
12.4
9.8
8.7
7.8
7.8
6.2
6.0
4.4
0.9
0
20
40
60
80
100
120
Iran Egypt Saudi
Arabia
UAE Morocco Algeria Libya Syria Jordan Tunisia Qatar Sudan Oman Yemen Kuwait Bahrain
Tonmn
2008 E 2012 F

Moreover, other countries are also implementing capacity expansions and establishing
Greenfield plants, including Algeria, Morocco, Libya, Jordan, Syria, Yemen, Kuwait, Sudan
and Qatar. Syria was expected to be one of the major cement producers in the region, as
since 2005 the Syrian government planned to add around 25mn ton, of which only 6mn ton
were confirmed. Up to date, no further details were disclosed concerning the start-up dates of
the remaining announced capacities. Therefore, we excluded Syria’s unconfirmed additional
capacities from our calculations.
Chart 25: Distribution of capacities additions in MENA countries between 2009-2012
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Cement Companies Global
Research
Iran is expected to have the lion’s share with respect to the new capacities additions, where
around 35% of the new cement capacities in the MENA region are expected to come from
Iran, which is projected to boost its production capacity by 89%, reaching 113.5mn ton
in 2012, relative to 60mn ton in 2008. It is worth mentioning that the Iran cement annual
production capacity reached 64mn ton on March 2009.
The new capacities additions in the region are expected to come over the course of the next 4
years, where 25% will be added in 2009, whereas the majority of the new capacities expansions
of 36% are forecasted to start operations in 2010. Afterwards, 23% and 16% of the new
capacities are due to be completed in 2011 and 2012, respectively. Moreover, Arab Countries
are expected to add 34, 36, 28 and 1mn ton over 2009, 2010, 2011 and 2012, respectively.
Chart 26: MENA countries current and forecasted annual cement production capacity
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Cement Companies and
Global Research
Iran, 35.1%
Sudan, 4.7%
Algeria, 2.7%
Bahrain, 0.2%
Egypt, 12.1%
Jordan, 3.5%
Kuwait, 1.2%
Libya, 4.6%
Morocco, 6.4%
Oman, 1.0%
Qatar, 2.0%
Saudi Arabia, 8.6%
Syria, 4.2%
Tunisia, 0.7%
UAE, 11.0%
Yemen, 2.0%
376
38
55
35
24 529
0.0
100.0
200.0
300.0
400.0
500.0
600.0
2008 2009 2010 2011 2012 2012
Tonmn

Saudi Arabia is expected to add 3mn ton in 2009, 7mn ton in 2010 and 3mn ton in 2011,
which will bring Saudi Arabia total cement annual production capacity to 61mn ton by the
end of 2012. UAE is expected to add 10, 2 and 4mn ton of new cement capacities in 2009,
2010 and 2011, respectively.
Chart 27: Capacities additions by country throughout 2009 to 2012
Source: International Cement Review (ICR), MEED, Iran Cement, CemWeek, Zawya, Cement Companies and
Global Research
However, the negative effect of the world financial crisis on the construction sector forced
some cement producers to revise their expansion plans, either by postponing their projects
or by cancelling the entire project. Therefore, some of the announced projects were deferred,
especially in UAE and Saudi Arabia.
In UAE, Jebel Ali Cement factory, which will have an annual production capacity of 2.5mn
ton, completion date were postponed to 2010. In addition, JK cement, which is expected
to have an annual capacity of 2.2mn ton, was postponed to commence operation in 2011.
In Saudi Arabia, Arabian Cement Company postponed its 3mn ton cement plant to start
operations in 2011, whereas Southern Provence Cement Company freezed its expansion
plans, until market conditions improve.
These huge cement capacities addition in the MENA region coming on stream over the next
years, unluckily coincided with the global economic slowdown and a declining activity in the
construction sector. This situation is expected to create an over-supply in the regional cement
market and trigger price wars, in addition to possible delays in the planned commissioning
dates of the new capacities, shutdowns of some of the inefficient existing capacities and
lower utilization rates Therefore, we believe that countries with low cash cost of production
per ton will be better positioned to survive the declining global cement prices and export their
excess capacities at competitive prices.
Pricing and Cost
Pricing
Based on the fact that most of the region’s governments intervened in the cement industries,
either by imposing price caps or setting an export duty fee, the cement prices in 2008 were
stable to the extent to which the governments were able to enforce the stated regulations. The
average retail cement price in the MENA region in 2008 was approximately US$103/ton.
-
10
20
30
40
50
60
Iran
Egypt
U
A
E
SaudiA
rabia
M
orocco
Sudan
Libya
Syria
Jordan
A
lgeria
Q
atar
Yem
en
K
uw
ait
O
m
an
Tunisia
Bahrain
Tonmn
2009 2010 2011 2012

Chart 28: Cement retail prices in the region
Source: International Cement Review (ICR), Global Cement Magazine, WorldCement, CemWeek and Global Research
Cost
Cement production cost varied among different MENA countries and some other selected
countries, depending on the cost of energy, raw materials and labor. The MENA region
average cash cost of production in 2008 reached US$40/ton. It is worth mentioning that
Algeria has the lowest cash cost of production of US$15/ton.
Chart 29: Selected countries cash cost of production
Source: International Cement Review (ICR) and Global Research
200
151
130 128
118
101 100 99
90 90 90 85 79 78 77 70 65
-
50
100
150
200
250
Sudan
Yem
en
Syria
M
orocco
Jordan
Turkey
A
lgeria
U
A
E
Egypt
Bahrain
K
uw
ait
Lebanon
Tunis
O
m
an
Q
atarSaudiA
rabia
Iran
US$/ton
55 54
50
45
40
33 33 32
26 25 24 23
15
0
10
20
30
40
50
60
Jordan
O
m
an
Syria
Europe
M
orocco
U
A
E
India
Egypt
China
Q
atar
SaudiA
rbia
Iran
A
lgeria
US$/ton

Egypt Cement Industry
Background
Egypt is one of the oldest countries in cement manufacturing in the region, as it started cement
production in the early years of the 20th century, specifically in 1927 with the construction of
Torah Cement Company. Later in 1929, Helwan Cement Company was established followed
by Alexandria Cement Company in 1948 and National Cement Company in 1956. In the 70s,
the production capacities of the 4 cement companies reached around 4mn tons.
The construction boom witnessed in the late 70s and 80s created high demand for cement
that was met through imports because of the limited local production capacities, despite the
opening of 3 new cement companies, Suez, Assuit and Amiryah, which started production
throughout that period. In the mid 80s, Egypt became one of the largest cement importing
countries in the world.
During the 90s, 6 new cement companies were established to cope with the increasing
construction activity and the resulting increasing cement demand, especially with the
appearance of new sub-urban cities such as, Al-Sherouq, Al-Obour, 6th of October, 10th of
Ramadan and Al-Sadat. However, Egypt’s cement net importing position prevailed during
the 90s and the early years of the 21st century.
Consequently, cement producers in Egypt increased their production capacities and enhanced
their production lines to meet the surging local cement demand. In 2002, Egypt turned out to
be a net exporter of cement and later in 2004 Egypt stopped importing cement and became
one of the largest cement exporting countries in the world.
Similarly, cement distribution and pricing evolved over time and went through 3 phases of
development. The first phase started in 1932 with the establishment of the cement store by
the sole cement producers then, Torah and Helwan, to organize selling their production.
Later in 1957, the government replaced the cement store with the cement selling office,
which was responsible for marketing cement in the local and export markets. However, the
government’s centralized management of that office led to price distortions and production
bottlenecking in the cement sector. Therefore, the cement selling office was terminated in
1991 and cement producers became free to set their prices based on the market forces.
Currently, grey cement manufacturers in Egypt reached 13 players with a total production
capacity of 43.3mn ton. Out of the 13 market players, there are 9 cement companies controlled
by 6 leading multinational companies, who entered the Egyptian market mainly through the
privatization of the state-owned cement companies, which started in 1996. The entrance of
these multinational companies significantly contributed to enhancing the productivity and
efficiency of the local cement industry.
Ordinary Portland Cement (OPC) is the most common type of cement produced in Egypt.
This type of cement is the most widely used in every aspect of the construction works. In
addition, the production mix is not limited to OPC, it also includes, seawater cement, rapid
hardening cement, slag cement and white cement. These other types of cement are more
specific purpose cement and differ from OPC in their composition.

Sector Drivers
Economic Activity
The Egyptian economy continued its robust growth for the third consecutive year, achieving
an average GDP growth rate of 7.1% over the past 3 years. The economic growth was broad-
based including various sectors. The main sectors that have witnessed the highest growth rate
in real term over the past 3 years were construction 14.9%, Suez Canal 14.0%, tourism 13.7%
and communication 12.9%. This healthy economic performance came on the back of economic
reform policies adopted by the government since 2004, as the government continuously presses
on with legislative and administrative efforts to create better business environment.
Chart 30: Real GDP growth
Source: Ministry of Economic development, CBE Global research
The government efforts placed Egypt for the third time in 4 years, among the top 10 global
reformers and the top regional reformer this year in the «Doing Business 2009» report,
which is compiled annually by the World Bank comparing the business environments in 181
economies worldwide. There have been improvements particularly in the areas of starting a
business, dealing with construction permits, registering property, getting credit, protecting
investors and trading across borders.
Chart 31: Total implemented investments
Source: CBE Global research
This economic growth came on the back of growth in final consumption at a CAGR of
18.3%, which was mainly attributable to the growth in private consumption, over the period
from 2004/05 to 2007/08. In addition to the huge investments undertaken by local and foreign
investors in almost all the economic sectors, where total investment reached L199.5bn,
representing 22.3% of GDP and achieving a CAGR of 27.4% over the same period.
5.9%
3.4% 3.2% 3.1%
4.2%
4.6%
6.9% 7.1% 7.2%
5.0%
5.4%
7.1%
-
100
200
300
400
500
600
700
800
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
H
1
2007/08
H
1
2008/09
LEmn
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
Real GDP GDP growth
34 34 31 36 34 42 50 49 58 65 24 30
30 31 32 32 34 37
46 66
97
134
60 66
18.9%
17.8% 17.8%
16.3% 16.4%
17.9%
18.7%
20.9%
22.3%
19.2%
18.5%
20.8%
-
50
100
150
200
250
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
H1
2007/08
H1
2008/09
LEbn
10%
12%
14%
16%
18%
20%
22%
24%
Public Investment Private Investment Implemented invt./GDP

Moreover, Foreign Direct Investment (FDI) reached US$13.2bn in 2007/08, recording a
remarkable CAGR of 50.5% over the past 3 years. It is worth mentioning that FDI represented
8.1% of GDP in 2007/08, compared to 8.5% in 2006/07.
Chart 32: Net FDI
Source: Ministry of Investment Global research
USA and European Union (EU) represent a major source of FDI, where they collectively
account for around 65% of total FDI inflows to the Egyptian economy. When we look at the
distribution of the total FDI inflows by country, we find that USA is the greatest contributor
with a share of 36.1% in 2007/08, followed by the Euro Union with a share of 28.7%.
Chart 33: FDI total inflows
Furthermore, higher international food and energy prices prevailed in the international
markets, as well as the higher local consumption level resulted in soaring inflation rate,
reaching a peak of 23.6% in August 2008, and higher cost of imports, which increased by
37.8% in 2007/08 over the previous year, in addition to higher exports proceeds, which
increased by 33.3% in 2007/08. The increase in the cost of imports outweighed the growth
in exports, leading to 43.7% increase in the trade deficit in absolute value and as percent of
GDP in 2007/08, reaching 14.5% compared to 12.7% in 2006/07.
3.9
6.1
11.1
13.2
7.8
4.0
84.4%
19.4%
7.2%
57.8%
80.9%
-48.2%
-5
0
5
10
15
2004/05 2005/06 2006/07 2007/08 H1 2007/08 H1 2008/09
US$bn
-50.0%
0.0%
50.0%
100.0%
150.0%
New Establishments and Expansions Sale of Assets to Non-Residents Real Estate
Petroleum SectorFDI Growth
0
2
4
6
8
10
12
14
16
18
2004/05 2005/06 2006/07 2007/08 H1 2007/08 H1 2008/09
US$bn
USA EU Arab Countries Others

Chart 34: Development in inflation and the corridor range
On the other hand, the increase in net services by 30.2%, mainly on the back of the growth
in receipts from Suez Canal and tourism, as well as the incline in transfers by 32.3%,
compensated to some extent for the increase in trade deficit and resulted in a surplus of
US$888mn in the current account balance in 2007/08. Nevertheless, the current account
balance declined by 60.9%, compared to the previous year, and represented 0.6% of GDP.
Starting from the second half of 2008, the global financial crisis extended its shadows on the
Egyptian economy, where GDP growth reached 5% during H1 2008/09, compared to 7.1% in
H1 2007/08. Although final consumption kept is momentum during H1 2008/09, growing at
23.7%, total investments were severely hit, achieving a growth rate of 13.8% in H1 2008/09,
relative to a growth of 33.2% in H1 2007/08. Moreover, FDI witnessed a sharp decline by
48.2% from in US$7.8bn in H1 2007/08 to US$4.0bn in H1 2008/09, as the majority of FDI
inflows were from USA and EU that have been severely hit by the world credit crunch.
The current account balance deficit widened to US$2,513mn, representing 2.7% of GDP
in H1 2008/09, compared to US$294mn, representing 0.4% of GDP in H1 2007/08. This
decline came on the back of deteriorating trade balance position, decreasing by 29.8%, in
addition to slower growth in Suez Canal receipts, which recorded a growth rate of 8.1% in
H1 2008/09 compared to 24.6% in H1 2007/08, as well as 2.8% growth in tourism receipts in
H1 2008/09, as opposed to 30.1% in H1 2007/08.
Therefore, the Egyptian government has taken measures to limit the spillover negative effects
of the world financial crisis and spur economic growth including:
1. Increasing the infrastructure investment budget,
2. Cancelling taxes on exports and increasing financial support to all exporting sectors
benefiting from export support fund to 50%,
3. Postponing plans to cancel subsidies on electricity and natural gas for energy-intensive
industries, like cement, fertilizers and petrochemicals,
4. Refraining imports of finished goods and commodities that have a local counterpart.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
June2005Jun-06Jun-07Dec-07Jan-08Feb-08M
ar-08Apr-08M
ay-08Jun-08Jul-08Aug-08Sep-08Oct-08Nov-08Dec-08Jan-09Feb-09M
ar-09Apr-09M
ay-09
Inﬂation Rate Deposit Rate at the CBE Lending Rate at the CBE

We believe that trade deficit is not expected to worsen dramatically in 2009 as imports
decline, as a result of a weaker domestic demand and plunging commodity prices will to
some extent offset the expected drop in the country’s exports. In addition, the current account
deficit is expected to widen as a result of the declining tourism and Suez Canal revenues, as
well as the remittances of the expatriate workers.
Moreover, The subsidy bill, which surged by almost 50% in 2007/08, is expected to witness
a considerable decline as the oil prices dropped severely since June 2008 and the changes
made by the Egyptian government to reduce energy subsidy during 2008 are not expected to
reverse. This in turn will leave more room for the government to direct this saving in other
areas that could bolster the economic growth.
Despite the challenges that currently face the Egyptian government to sustain the economic
growth, the financial intermediation will not be hampered by the international credit crunch,
supported by a strong banking sector with healthy balance sheets and low level of financial
integration, thanks to the government reforms. The Egyptian banking sector reforms were
mainly attributed to strong supervision and regulation, elimination of nonperforming loans
and unadventurous financing and investment practices.
In general, Egypt’s medium term outlook remains sound with an expected GDP growth of
around 4%. We believe that the Egyptian economy is capable of surpassing the current storm
that hit the world economy, thanks to the reforms implemented since 2004. Most likely, the
government will work on targeting inflation rate, maintaining economic growth and balance
of payments stability, throughout 2009.

Construction Activity
The construction sector is considered one of the important sectors in the Egyptian economy,
as it has been expanding remarkably at a CAGR of approximately 15% over the past 3 years
and employs approximately 10% of the Egyptian work force. Another sector that is highly
interrelated with construction sector is the real estate sector, which achieved a CAGR of
around 4% over the same period. Collectively, the two sectors contribution to GDP reached
7.4% in 2007/2008, achieving a CAGR of 10% for the period from 2004/05 to 2007/08.
Chart 35: Construction vs. real estate sector macro indicators
The high construction activity witnessed in all the economic sectors whether, residential,
recreational, industrial or infrastructure, over the recent past created high demand on all
building materials in the local market. This growth was mainly attributable to robust economic
performance, as well as the large investments implemented by both the government sector
in the field of social services and public utilities, and the private sector in all segments of
the real estate sector including, housing, commercial, hospitality and industrial development
projects.
According to building permits quarterly bulletin published by the Egyptian Cabinet
Information and Decision Support Center (IDSC), the composite building and construction
index in Egypt maintained its momentum in December2008, increasing by 5.6% on Q-o-Q
basis and 18.8% on Y-o-Y basis. The composite building and construction index recorded a
healthy CAGR of 9.2% over the last 5 years.
Chart 36: Composite building and construction index
Source: IDSC Global research
(10,000)
-
10,000
20,000
30,000
40,000
1998/99
1999/00
2000/01
2001/02
2002/03
2003/04
2004/05
2005/06
2006/07
2007/08
H
1
2007/08
H
1
2008/09
LEmn
-5.0%
0.0%
5.0%
10.0%
15.0%
20.0%
Construction Real Estate Construction Growth Real Estate growth
0
20
40
60
80
100
120
140
160
180
Q42003
Q12004
Q22004
Q32004
Q42004
Q12005
Q22005
Q32005
Q42005
Q12006
Q22006
Q32006
Q42006
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008

Moreover, the total number of building permits kept its upside trend in December 2008,
reaching 21,905 building permits. The overall building permits index achieved a growth rate
of 9.4% in December 2008, compared to the previous quarter, and an impressive 77.6% over
December 2007. This increase in issued building permits promises a positive outlook in the
construction sector.
Chart 37: Overall building permits index
It is worth mentioning that the construction activity does not include only the construction
of different types of buildings, but also it includes all infrastructure developments, such as
roads, electricity and water works. According to the latest data published by CAPMAS, the
total value of executed construction work by the private sector in 2007 reached LE8.9bn,
against a total value of LE10.6bn executed by the public sector in 2006/07.
Although the reporting periods for the private sector and the public sector do not match, we
will add the two values up just to find out how the value of executed construction work is
distributed among different economic sector during the last available fiscal year.
Chart 38: Total value of executed construction work according to economic activity
Residential buildings share of total value of executed construction works was only 17% and
the remaining other types of buildings captured 31% of the total construction works, whereas
the remaining 52% was spent on different infrastructure projects. This fact highlights that the
demand on building materials depends on the broad construction activity including building
construction and infrastructure works.
0
50
100
150
200
250
Q42003
Q12004
Q22004
Q32004
Q42004
Q12005
Q22005
Q32005
Q42005
Q12006
Q22006
Q32006
Q42006
Q12007
Q22007
Q32007
Q42007
Q12008
Q22008
Q32008
Q42008
Residential blgs., 17%
Industrial blgs., 5%
Healthcare blgs., 4%
Educational blgs., 4%
Administrative blgs., 1%
Roads bridges
18%
Water water-waste
projects, 29%
Electricity stations, 5%
Others, 17%

Although the construction sector has been negatively affected during the H1 2008/09,
achieving a growth rate of 9.4%, compared to 14.9% in H1 2007/08, the real estate sector
was able to slightly improve its growth rate from 3.4% in H1 2007/08 to 3.5% in H1 2008/09.
This large decline in the construction sector growth came on the back of lower investments,
as a result of the global financial crisis.
Therefore, the Egyptian government took some measures to stimulate the Egyptian economy,
including the construction sector by increasing the public infrastructure investment budget
by LE15bn, in addition to the originally planned infrastructure investments of approximately
LE418bn in electricity, water, sanitation, transportation and communication sectors
throughout the sixth 5-year plan (2007/08-2011/12).
The sixth five year plan (2007/08-2011/12) placed an overall investment target of LE1,295bn,
of which around LE670bn are planned to be spent on construction activity in general, which
includes targeted investments of LE418bn in the infrastructure, LE132bn in construction and
real estate, LE76bn in health and education and LE44bn in tourism.
Chart 39: Sixth 5-year plan targeted total investments
Distribution among economic sectors Distribution by implementing body
Source: Ministry of Economic Development Global Research
The government 5-year plan set a target to encourage investment and prioritize development
in Upper Egypt, within the context of the government’s local development of developing
under-developed areas of Egypt. The plan included establishing a holding company for Upper
Egypt to identify investment opportunities, providing investment incentives to encourage
private sector investment, completing delivery of potable water, electricity and natural gas.
The local development plan also included rural development, which include the establishment
of 400 villages and reclamation of 1mn acre, as well as slum development project.
Moreover, the government announced that it will allocate another LE15bn to be invested
in participation with the private sector in infrastructure and industrial development projects
within the context of Public-Private Partnership (PPP) strategy, which proved to be a
successful alternative to government, as it relief some burden from the state’s spending
budget, besides benefiting from the private sector technical know-how, as well as better
offered services. During the period from 1998 to 2007, the private sector participation in PPP
projects reached US$15.3bn in the Energy, Telecom and transportation sectors.
Agriculture
Irrigation, 5%
Extractive
Industries, 11%
Manufacturing, 23%
Construction
real estate, 10%
Trade, 3%
Tourism, 3%
Education Health, 6%
Other social services, 6%
Electricity, 6%
Transportation, 13%
Water, 1%
Sanitation, 3%
Financial services, 0%
Communication, 10%
Public sector, 16%
Private sector,
84%

Chart 40: Private sector participation in infrastructure projects
By year By sector
Source: PPI World Bank database Global Research
Given the current global economic recession resulted from the credit crunch, the government’s
total targeted investments throughout the sixth 5-year development plan seem to be optimistic,
as we believe that total planned investments should be adjusted downward because total
implemented investments, including FDIs will be negatively affected at least during the next
one to two years.
However, lower international commodities prices, including building materials, which came
on the back of declining global demand, presented an opportunity for more infrastructure and
building investments at lower cost, mainly in less developed countries with immense society
development needs.
Inaddition,thegovernment’splantoboostinvestmentsininfrastructure,suchastransportation
and public utilities, as well as economic housing and industrial development projects, besides
prioritizing the development of under-developed areas in Egypt will act as a cushion for the
activity in the construction sector.
We, therefore, believe that the construction sector is expected to experience slower growth
rate during the next one to two years, relative to the booming phase over the last 3 years,
yet the decline in growth rate is not expected to be that severe, providing reasonable support
for the building materials sector, including cement. In other words, the outlook of the local
construction sector is to some extent promising, taking into consideration the concurrent
global financial turmoil and liquidity squeeze.
Population
Population is considered one of the main drivers of the economic activity, including the
building materials sector, through their demand on housing and different construction
activities. Egypt is a population rich country and has the largest population in the MENA
region, representing around 15% and 21% of total MENA and Arab countries population,
respectively.
Egypt’s population reached approximately 75mn at the end of June 2008, achieving a CAGR
of 2% over the past 10 years. Furthermore, population in Egypt is expected to reach 84.5mn
in 2014, growing at its historical annual average growth rate.
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
US$mn
Energy Telecom Transport
1,092 689
11,895
398
1,277
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
Electricity Natural Gas Telecom Airports Seaports
US$mn

Chart 41: Egypt population
Source: IMF Global research
Egypt has favorable demographics segmentation with around 33% of its current population is
less than 15 years old and 50% falls in 15-45 age-group. This segmentation guarantees a strong
current and future demand on housing and society development projects. It is worth mentioning
that it is estimated that around 350,000 housing units are needed annually to meet new housing
demand, in addition to 2.5mn housing units to meet accumulated unmet housing demand.
Chart 42: Egypt population age-group segmentation
Source: CAPMAS Global research
Regulations
Generally, the cement industry in Egypt received a great deal of the government supervisory
authorities’ attention, because of the increasing local cement selling price, resulting from
fake supply shortage existed in the local market, as local production exceeds consumption.
This situation emerged because cement producers and traders preferred to direct cement
production to the export market, where prices are higher than the local selling prices, in order
to achieve higher profits.
To ensure local supply of cement at reasonable prices, the Egyptian government imposed
an export duty of LE65 (US$12)/ton on exported cement in February 2007. Apparently, the
export duty was not severe enough to offset cement export price differential. Therefore, the
government increased the export duty to LE85 (US$15.5)/ton in August 2007. However, local
cement prices remained high, as cement producers passed their increased cost to consumers.
In an attempt by the government to bring discipline to the local cement market, the Egyptian
government imposed a ban on cement exports for 6 months starting from April till the end
0
10
20
30
40
50
60
70
80
90
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Peoplemn
1.9%
2.0%
2.0%
2.1%
2.1%
2.2%
Population Growth
15 years, 33%
15-45 years, 50%
45-65 years, 12%
65 years, 5%

of September 2008, to calm an overheated local cement market. Unfortunately, local cement
prices remained high, on the back of high local demand driven by the construction boom,
as well as the traders’ malpractices of maintaining high prices through faking shortage of
supply.
In addition, the government decision to impose LE27(US$5)/ton of clay extracted from
quarries, as resources development fees in May 2008, as well as the liberalization of energy
prices for energy intensive industries, will harm the competitive edge of Egyptian cement
sector, for its relatively low cost of production. As the government felt that the subsidy that
should go to local consumers, is passed to exports and that the producers are making high
profit margins.
Furthermore, the Minister of Trade and Industry filed a sue case of anti-competitive practice
against local cement producers for the period from May 2005 till the end of 2006. The local
cement producers were accused of forming a cartel to set local cement prices and dividing
market shares among them. In August 2008, the court found local cement producers guilty of
exercising monopolistic behavior and fined cement manufacturers with a total of LE200mn.
However, the emergence of the global financial crisis since mid September 2008 triggered
the Egyptian government to take some defensive measures in order to minimize the negative
effect of the slowdown in the world economy on Egypt’s cement exports. These measures
included the removal of the LE85/ton export duty in October 2008, as well as bringing the
export ban to an end.
Later in February 2009, cement producers voluntary decided to stop cement exports for 3
months in order to satisfy local demand and calm the surging local cement prices, around
LE490/ton, which reached more than LE700/ton. The skyrocketing cement price came on the
back of two major factors; the first was the significant surge in transportation cost, as truck
drivers organized a strike across the governorates to protest the new law that bans the use of
trailers. The second was the malpractice of traders, who took advantage of this strike, as well
as the surging cement local demand to further raise prices.
Consequently, the Minister of Trade and Industry intervened in April 2009, through issuing
some regulations to control local cement prices including, assigning the government’s
anticompetitive supervisory body to investigate local cement market for any dysfunctional
during the past 6 months, banning cement exports for 4 months, reduction of cement imports
clearing period from 30day period to 3-day period, as well as obliging cement producers
to print their selling prices on cement bags for all distribution channels, including end-user
price, in order to end the manipulation of cement prices by traders.
This new set of regulations is expected to ease some of the upward pressure on local cement
price, due to the competition from imported cement. However, the current strong local cement
demand will act as a buffer for sharp decline in local cement price and the profitability of
cement producers. On the other hand, banning cement exports for 4 months for the second
time in less than a year, although it could jeopardize the position of the Egyptian cement in
export markets, we believe this negative effect will be marginal, as Egyptian main cement
export markets, such as Spain and Italy are facing a severe decline in demand.

We believe that the new capacities addition will fix the current distortion taking place in
local cement price, as new supply will come on stream to meet the soaring local cement
consumption. However, regulating cement imports will be a critical issue, especially that
Saudi Arabia, where huge new capacities are under their way, removed the export ban. In
addition, Saudi Arabia has lower cost of production and could export to Egypt at low prices.
This situation will create unfavorable market conditions for all cement producers, in the form
of price war, which will lead to lower profitability and extended payback period for new
investments.

Supply/demand analysis
The Egyptian cement industry has been growing vigorously over the past 5 years, on the back
of the high activity experienced in the construction and real estate sectors. Egypt’s cement
consumption has been growing at a CAGR of approximately 6% over the past 40 years. In
2008, local cement consumption reached 38.4mn tons, achieving a growth rate of 11.4% over
2007 and recording a CAGR of around 9% since 2003. On the other hand, cement production
reached 39.8mn tons, compared to 38.4mn tons in 2007, achieving a CAGR of 6.6% over
the past 5 years.
Chart 43: Egyptian cement industry supply and demand
Over the past 5 years, the overall cement sector capacity utilization rate kept increasing,
with some companies operating over 100% of their installed capacities, driven by the strong
growth in cement consumption, which outpaced production growth.
Despite the declining global demand, resulting from the global financial crisis, cement
demand in Egypt continued its robust growth fueled by lower steel prices, which triggered
higher construction activity, as developers used this opportunity to complete their pending
and delayed construction works, when steel price was high, in addition to accelerating their
projects schedule to benefit from lower development cost.
Chart 44: Monthly cement demand
Moreover, individuals who acquired land plots within the context of the national housing
program under “build your own home” scheme, created high demand on building materials
28.3
32.5
36.2
38.4 39.8
23.6
28.1
30.2
34.5
36.5
38.3 39.8
41.8 43.338.4
77%
85%
91% 92% 92%
0
5
10
15
20
25
30
35
40
45
50
2004 2005 2006 2007 2008
Tonmn
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Production Local Consumption Capacity Utilization rate
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Tonmn
2006 2007 2008 2009

because they are obliged to get the necessary building permits and finalize the construction of
their own homes within a pre-specified time span. In addition, homes construction in villages
experienced high activity, as the government is discussing a law that will regulate building
in villages and agricultural lands.
Accordingly, local cement prices reacted positively to this high demand, surging from around
LE420/ton in the beginning of 2008 to more than LE700/ton in February 2009. Furthermore,
the strike organized by truck drivers in February 2008 to protest the new law that bans the use
of trailers also contributed to the rising local cement price.
Chart 45: Monthly cement demand vs. cement average retail price in Greater Cairo
Source: IDSC, CBE, Ministry of Investment Global research
It is worth mentioning that cement demand in Egypt is seasonal, as it witnesses some decline
during the winter months from October to February and the Holy month of Ramadan, while
it accelerates throughout the summer months.
Chart 46: Monthly cement demand vs. 3-month moving average
Source: IDSC, CBE, Ministry of Investment Global research
On the export front, Egypt’s cement exports as percentage of total cement production
experienced a declining trend over the past 5 years, as cement producers kept directing a
greater proportion of their production to the local market in order to meet the increasing
local cement consumption. The remarkable decline in 2008 exports came on the back of the
Minister of Trade and Industry decision to ban cement exports for a six month period from
March to October 2008.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Jan-04
Mar-04
May-04
Jul-04
Sep-04
Nov-04
Jan-05
Mar-05
May-05
Jul-05
Sep-05
Nov-05
Jan-06
Mar-06
May-06
Jul-06
Sep-06
Nov-06
Jan-07
Mar-07
May-07
Jul-07
Sep-07
Nov-07
Jan-08
Mar-08
May-08
Jul-08
Sep-08
Nov-08
Jan-09
Mar-09
Tonmn
-
100
200
300
400
500
600
LE/ton
Local demand LE/ton
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
31/01/2003
30/06/2003
30/11/2003
30/04/2004
30/09/2004
28/02/2005
31/07/2005
31/12/2005
31/05/2006
31/10/2006
31/03/2007
31/08/2007
31/01/2008
30/06/2008
30/11/2008
30/04/2009
Tonmn
Local Consumption 3 per. Mov. Avg. (Local Consumption)

Chart 47: Cement and clinker exports
Source: CBE, Ministry of Investment Global research
Going down to the companies’ level, we found that the market share of each company
is highly in line with their respective capacity. With respect to total domestic and export
cement sales, Italicementi group, including Suez, Helwan and Torah cement companies, has
the largest market share of around 28%, followed by Egyptian Cement Company, which is
owned by Lafarge, captured approximately 21% market share in 2008.
Chart 48: Egyptian cement market players market shares in 2008
Source: Companies financials Global research
It is worth mentioning that Arabian Cement Company only produces clinker and directs
almost all of its production to the export market. Therefore, we excluded Arabian Cement
Company from our calculations, in order not to distort our cement capacity, production and
consumption figures, besides the scarcity of information about this company specifically.
Capacities
The Egyptian grey cement sector consists of 13 cement manufacturing companies, of which
9 companies are controlled by 6 multinational companies. Only one company is owned by
the Egyptian government that is National Cement Company, while 3 firms are owned by the
Egyptian private sector, namely Misr Beni Suef Cement, Misr Cement Qena and South Valley
Cement. Multinational companies control 85.5% of Egypt’s grey cement manufacturing
capacity.
4.8 5.2 5.8
4.2
1.2
7.3
4.2 2.4
1.9
0.9
16.9%
15.9% 16.1%
10.9%
3.0%
-
2
4
6
8
10
12
14
2004 2005 2006 2007 2008
Tonsmn
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
Cement Exports Clinker Exports Cement exports to total production
Italcementi (Suez+Helwan
+Torah), 27.7%
Egyptian Cement Company
(lafarge), 20.5%Assuit Cement (Cemex), 12.7%
Alexandria Beni Suef Cement (Titan), 8.4%
Ameryah Cement (Cimpor), 7.8%
Sinai Cement (Vicat), 6.0%
Misr Beni Suef Cement, 4.3%
Misr Cement Qena, 5.0%
South Valley Cement, 0.2%
National Cement, 7.4%

Chart 49: Egypt current capacity distribution by company
At the end of 2008, Egypt’s cement production capacity reached 43.3mn tons, compared
to 41.8mn ton in 2007, recording a growth rate of 3.9%. The increase in the production
capacity was attributable to the opening of South Valley Cement new production lines. The
distribution of the current cement capacities in Egypt is found to be more concentrated in
Suez and Sinai.
Chart 50: Egypt current cement capacities distribution by region
In order to meet the growing local cement consumption, Industrial Development Authority
(IDA) held an auction in October 2007 to bid for new cement capacities licenses, either by
new entrants or existing players wishing to expand their capacities. The bid resulted in the
sale of 8 out of the 10 offered new licenses against a total sum of LE1.14bn, to add 12MTA
of cement capacity.
Later in January 2008, IDA offered the remaining two licenses in El-Wadi El-Gedid and
Sohag governorates for bidding. The bid resulted in the sale of El-Wadi El-Gedid license,
whereas Sohag license was postponed, after all the companies applied for the license have
been disqualified. Accordingly, total new cement capacities additions resulting from IDA
auction summed up to 13.5mn ton tons of cement capacity, which are planned to start
production between 2010 and 2011.
Italcementi (Suez, Helwan,
Torah), 27.3%
Egyptian Cement Company
(lafarge), 23.1%Assuit Cement (Cemex), 11.5%
Alexandria Beni Suef Cement (Titan), 7.6%
Ameryah Cement (Cimpor), 8.5%
Sinai Cement (Vicat), 3.5%
Misr Beni Suef Cement, 3.5%
Misr Cement Qena, 3.5%
South Valley Cement, 3.5%
National Cement, 8.1%
Lower Egypt, 12%
Upper Egypt, 26%Central Egypt, 26%
Suez Sinai, 36%

Egypt cement-sector-072009

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