In a recent report, HC Brokerage shed the light on the cement industry in Egypt, specifically on Arabian Cement Company (ARCC) where it focused on the local industry switching dynamics and the company’s efforts to revamps its strategy to enhance financial resilience
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Macroeconomic and industry developments call for disciplined pricing and tighter cost management
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ARCC is positioned to meet CBAM export compliance while hedging cost risks, improving its fundamentals
Local industry switching dynamics: In 2025, Portland cement prices surged c80–85% above the 2024 average of EGP2,455/ton, supported by c14% y-o-y consumption growth in 10M25 to 44.2m tons and a c6% y-o-y decrease in exports to 15.9m tons, pushing sector utilization above c90% of licensed c76m-ton capacity. To contain prices, the Egyptian Competition Authority (ECA) in July 2025 permanently lifted local output quotas, while the Ministry of Trade and Industry ordered the restart of nine idled lines (seven due within a year, adding an average of c12.6m tons), halved license modification fees to EGP130/ton and offered two new cement licenses of 2m tons each. Despite partial normalization, cement prices remain supported by firm local demand, estimated at 53.7m tons in 2025e, and disciplined supply management, which optimizes the trade-off between capturing a higher domestic price premium, while meeting rising export demand, ensuring FX self-sufficiency, fuel-import flexibility, and reducing exposure to domestic and regulatory risks. We believe this pricing dynamics will be sustained, given the opportunity cost of allocating more sales domestically, which will be reflected in a local price premium, in our view. Moreover, we estimate that the cement sector has inelastic demand. Hence, a single producer cutting its price will enjoy a short-lived market share gain before competitors replicate the cut, lowering prices and distorting sector profitability. Accordingly, from a game-theory perspective and amid opaque cost structures and asymmetric supply behavior among market players, producers are better off aligning output with demand to preserve equilibrium and maintain visibility into their scheduled capex plans. However, other than demand, we expect prices to be more affected by improved cost dynamics and efficiencies, which would materialize gradually as ongoing capex in fuel diversification and operational optimization begins to yield results. While we view demand as broadly sustainable, its growth continues to lag capacity reactivation, reinforcing the need for strict cost discipline and efficiency-led competitiveness.
Local margins to normalize and exports to remain robust: Based on our analysis of macroeconomic and sector data, we estimate a potential minor price normalization at EGP3,600–3,620/ton in 2026e, on c1.0% y-o-y higher demand, factoring in expected higher costs, including the effect of higher diesel and gasoline prices, electricity price adjustments, FX volatility, and coal and petcoke forward price trend being in mild contango. We expect local cement demand to grow at a c2.2% CAGR over 2025–30e, averaging c53m tons, supported by inflation moderation, monetary easing, streamlined private building permits (despite some talks of lags at the governorates’ level and a noticed slowdown in real estate secondary market turnover), the execution of project backlogs, the government’s efforts to boost private investment, industrial expansion, and attract FDIs. We expect sector margins to normalize gradually over the medium term, particularly given its delayed cost pass-through cycle, which has historically constrained timely repricing in response to cost shocks or regulatory changes. In our view, a stable and transparent industry regulatory environment is essential to reduce uncertainty and the need to maintain margin buffers. As for clinker and cement exports, in 2024, they reached 19.5m tons, with a mix of c38% cement and c62% clinker. In 10M25, export volumes declined c6% y-o-y to 15.9 tons, with the mix shifting to c59% cement and c41% clinker, driven by stronger demand from neighboring countries, especially for reconstruction, and growing opportunities in the EU and the US. Hence, we estimate that imposing a 30% export cap per company, as hinted at by the government, could lead to foregone export volumes among larger exporters, unless these volumes are absorbed by producers with lower export shares or later supported by additional capacity coming online or being reactivated. Looking ahead, optimizing logistics, maintaining cost efficiency, focusing on specialty and higher-margin products, and complying with the Carbon Border Adjustment Mechanism (CBAM) are key to boosting exports.
ARCC revamps strategy to enhance financial resilience: According to company data and its CEO’s interview with International Cement Review, ARCC is on track to achieve a new milestone in cost and export competitiveness through a planned multi-phase program that extends to 2030 to raise reliance and quality of alternative fuels (AF), including expanding the capacity of AF injection in both clinker lines, and investing in AF shredding facilities to reduce cost dependence on third-party suppliers. It began commissioning its hydrogen injection project, targeting a thermal substitution rate (TSR) of c55% by 2031. This project will enable ARCC to increase combustion efficiency, reducing the energy needed per ton of clinker, allowing an increase in AF use, achieving c8-9% savings in petcoke use, and cutting CO2 emissions by c130,000 tpa. The project payback period is 2–3 years, after which we expect gradual cost efficiency as production costs per Kg of hydrogen decrease over time and as potential longer-term scalability of hydrogen use shifts from a catalyst to a fuel input. ARCC increased its reliance on renewable energy, with its 24 MWh solar projects already covering c11% of its current power needs. Additional planned projects include waste heat recovery (WHR) and a cement mill optimizer to lower overall electricity consumption. Moreover, ARCC aims to advance the use of supplementary cementitious materials (SCMs) to reduce the clinker ratio in cement, using alternative raw materials to minimize limestone, planning to produce low-carbon calcined clay clinker and CEM III cement (with 50% ground granulated blast-furnace slag) upon completing a new cement silo project, and using AI technologies to optimize processes. These combined projects will enable the company to cut its CO2 emissions from production to 2.3m tons by 2031, down from 3.4m tons in 2023. We believe this decarbonization roadmap will strengthen ARCC’s operational and financial performances and largely hedge against margin vulnerabilities from rising costs and global competition. The company exports high-quality clinker to the EU and cement to neighboring countries, among others. Over 2025e–30e, we estimate ARCC total sales volumes to average 4.9m tons, with an export ratio averaging c42%. Revenue to grow by a CAGR of c3%, recording average EBITDA margin of c32% and net profit margin of c22%, normalizing to c27% and c19% by 2030e, respectively. By early 2026, final CBAM benchmarks are due, clarifying carbon cost exposure for EU importers. As ETS allowances phase out and demand shifts toward lower-carbon cement, we expect carbon costs to increasingly be passed through into pricing. Efficient producers are positioned to gain share and pricing power. According to our preliminary analysis of the CBAM rollout, we estimate ARCC could capture an average netback premium of EUR5.4/ton on exports to the EU, boosting margins by an average of c1.8% in 2026-30e. This estimate is based on available data, our assumptions and calculations, and remains subject to adjustment and refinement once actual benchmarks are finalized, released, and implemented, and as the actual weekly average auction price of EU ETS allowances evolves.
