MENA PMI for May rebounds, mood stays bearish

Purchasing managers' indexes (PMIs) in Saudi Arabia, the UAE and Egypt all rebounded in May, but sentiment in the three countries remained downbeat on lingering Covid-19 and oil price concerns.

Egypt's PMI improved significantly to 40.7 in May, up from 29.7 in April, while the UAE's PMI increased to 46.7 in May, compared with 44.1 in April. Saudi Arabia came closest to breaking into a positive PMI ranking, registering 48.1 in May, compared with 44.4 in April.

Egypt

Although output, new orders and exports remained low for Egypt, May recorded a less harsh decline in business conditions.

Some companies returned to normal business conditions during the month but others remained shut or production was minimal.

But the Egyptian government introduced some measures to ease the burden on industries such as steelmaking, including granting a three-month extension on property tax payments in the industrial sector. Costs of fuel inputs have also been reduced for industrial users. Natural gas for industrial use is to be priced at $4.50/MMBtu, down from $5.50/MMBtu, while electricity for heavy industry will be priced at 0.10 Egyptian pounds/kWh ($0.0064/kWh), down from E£1.10/kWh ($0.067/kWh).

The government recently announced a moratorium on private construction projects in major cities Cairo, Alexandria and Giza for the foreseeable future. But the 700km2 public mega-project known as the New Administrative Capital looks set to go ahead with a budget of $58 billion, albeit with the planned move-in date postponed.

The IMF predicts a slow recovery for Egypt, with some estimates suggesting the impact from Covid-19 will be felt on the economy until mid-2021 as exports and global trade dwindle, also affecting income from the Suez Canal.

UAE

The UAE's PMI was at its highest level in the past three months, but the outlook remained negative for market participants.

Exports and domestic demand remain lacklustre in the country, prompting steelmakers to roll over rebar prices for the third consecutive month. Capacity utilisation waned to 28.75pc, as production more than halved on the year to 115,000t.

About a third of projects in the UAE now are on hold after the government called a moratorium on new projects and an audit of all ongoing public projects. But these 3,150 projects account for more than 40pc of the total value of all active projects. The majority of the UAE's projects are in urban construction — a reflection of the country's high exposure to the tourism industry, which is one of the hardest hit globally.

The Argus monthly UAE rebar assessment now is at 1,623 UAE dirhams/t ($441/t) ex-works, down by Dh226/t ($61/t) on the year as the hot summer months approach. Mills in the UAE expect domestic demand to remain flat in the next few months, at a maximum of 130,000t for the month of June as liquidity concerns start to kick in. Some orders have been awaiting payment since the beginning of the Covid-19 outbreak, some market participants said.

Saudi Arabia

Saudi Arabia has been viewed as a bright spot for steel consumption in the MENA market, as a result of the government's drive to continue with its Vision 2030 projects and diversify its non-oil GDP.

But business closures and restricted capacity weighed on sentiment during the month of May. Production dipped by 6pc in April, reaching 612,000t in Saudi Arabia, which would bring capacity utilisation down to just over half, assuming a capacity of 13.6mn t/yr, according to the OECD. But mills in Saudi Arabia have typically operated at levels of below 50pc and the month of April was one of the strongest for the country historically.

Of Saudi Arabia's 5,084 total construction projects, 1,309 are on hold, accounting for the majority of the value, at about $361.7bn. Like the UAE, most of the projects in Saudi Arabia are in urban construction but a large value — about $129bn — is dedicated to oil and gas projects.

Rising raw materials costs are exacerbating the situation for MENA countries, which rely largely on iron ore as a feedstock. Iron ore prices have been steadily increasing this year, and the Argus daily ICX iron ore fines 62pc Fe assessment today stands at $100.45/dmt cfr Qingdao. In response to rising iron ore prices, some mills in the region chose to purchase billet instead, but in light of China's tactic of purchasing large quantities of billet as a hedging tool, prices for semi-finished steel are also soaring. The Argus daily Black Sea steel billet assessment stands at $363/t fob today, up by $30.50/t since the beginning of May.

By Sara Warden