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THE

LEBANON BRIEF

ISSUE 876

Week of 30 June – 05 July, 2014

ECONOMIC RESEARCH DEPARTMENT

Rashid Karame Street, Verdun Area

P.O.Box 11-1540 Beirut, Lebanon

T (01) 747802 F (+961) 1 737414

[email protected]

www.blom.com.lb

S A L

The Lebanon Brief Table Of Contents of 14

ISSUE 876; Week of 30 June – 05 July, 2014

S A L

TABLE OF CONTENTS

FINANCIAL MARKETS 3

Equity Market 3

Foreign Exchange Market 5

Money & Treasury Bills Market 5

Eurobond Market 6

ECONOMIC AND FINANCIAL NEWS 7

BLOM Purchasing Managers’ Index Recorded an Eight-Month High in June 7

BDL’s Total Assets Edged up by 2.76% to $82.73B by June 7

Electricity Production Stood at 1,039M of KWH in April 8

2013’s Insurance Penetration Rate in Lebanon Stood at 3.2% 8

Payment Cards Reached 2.18 M by the End of 2013 9

CORPORATE DEVELOPMENTS 10

Merger between BIT and NECB banks Leads to $1.1B in Total Assets 10

Solidere calls for a Second General Assembly 10

FOCUS IN BRIEF 11

Lebanese Steel Market – 2013 Update 11

This report is published for information purposes only. The information herein has been compiled from, or based upon sources we believe to be

reliable, but we do not guarantee or accept responsibility for its completeness or accuracy. This document should not be construed as a

solicitation to take part in any investment, or as constituting any representation or warranty on our part. The consequences of any action taken

on the basis of information contained herein are solely the responsibility of the recipient.

The Lebanon Brief of 14


S A L

FINANCIAL MARKETS

Equity Market

Stock Market

04/07/2014 27/06/2014 % Change

BLOM Stock Index* 1,210.73 1,216.51 -0.48%

Average Traded Volume 310,571 122,563 153.40%

Average Traded Value 873,541 1,667,919 -47.63%

*22 January 1996 = 1000

The failure of the eighth parliamentary session, the

ongoing strikes for public wages, and the

turbulences in the security situation that occurred

last week, had a negative impact on the Beirut Stock

Exchange. The BLOM Stock Index (BSI) slumped by

0.48%, for the second week in a row, to close at

1,210.73 on Friday. The average volume of traded

shares grew by 153.40%, to 310,571, while its value

declined by 47.63% to $873,541. Accordingly, the

market capitalization narrowed from $9.75B to

$9.70B.

On a comparative scale, the BSI lagged behind its

regional peers, where the S&P AFE40 index added

1.86% to 68.02 points, the S&P Pan Arab Composite

Large Midcap index gained 1.56% to 148.38 points,

and the Morgan Stanley Emerging Index (MSCI)

increased by 1.47% to 1,062.18 points.

Investors’ appetite was more buoyant on the Arab

stock exchanges, where Qatar, Dubai, and Abu Dhabi

ranked the top performers, with weekly upturns of

4.74%, 4.19% and 2.27%, respectively. On the other

hand, the worst performers during this week, behind

Beirut, were Bahrain and Tunisia with respective

decreases of 0.34% and 0.31%.

On the Beirut Stock Exchange, two banking stocks

lost value and two gained. In fact, the Audi listed

shares and BLOM’s Global Depositary Receipts slid

by 1.56% and 0.32% to close at $6.30 and $9.35,

respectively, while Audi’s Global Depositary Receipts

and Byblos listed shares improved by 5.18% and

2.53%, ending the week at $6.90 and $1.62,

respectively.

Similarly, the BLOM Preferred Shares Index (BPSI)

dropped from last week’s 104.46 points to 104.25

points as three preferred shares lost value while only

one added value. Byblos’ preferred shares classes 08

and 09 weakened by 0.50% and 0.99% to reach

$100.20 and $100.00, respectively. In addition, BLC

preferred A shares declined by 2.91% to end the

week at $100.00. However, Bank of Beirut’s

preferred shares class H increased by 0.78% to

$25.70.

On the London Stock Exchange (LSE), the Global

Depositary Receipts (GDR) of Solidere lost 5.45% to

$13.00, while Audi GDR shares added 1.45% to

reach $7.00.

Banking Sector

Mkt 04/07/2014 27/06/2014 % Change

BLOM (GDR) BSE $9.35 $9.38 -0.32%

BLOM Listed BSE $8.80 $8.80 0.00%

BLOM (GDR) LSE $9.35 $9.35 0.00%

Audi (GDR) BSE $6.90 $6.56 5.18%

Audi Listed BSE $6.30 $6.40 -1.56%

Audi (GDR) LSE $7.00 $6.90 1.45%

Byblos (C) BSE $1.62 $1.58 2.53%

Byblos (GDR) LSE $73.00 $73.00 0.00%

Bank of Beirut (C) BSE $19.00 $19.00 0.00%

BLC (C) BSE $2.00 $2.00 0.00%

Fransabank (B) OTC $28.00 $28.00 0.00%

BEMO (C) BSE $1.82 $1.82 0.00%

Mkt

04/07/2014

27/06/2014

% Change

Banks’ Preferred Shares

Index *

104.25 104.46 -0.20%

Audi Pref. E BSE $100.00 $100.00 0.00%

Audi Pref. F BSE $100.00 $100.00 0.00%

Audi Pref. G BSE $100.00 $100.00 0.00%

Audi Pref. H BSE $100.00 $100.00 0.00%

Byblos Preferred 08 BSE $100.20 $100.70 -0.50%

Byblos Preferred 09 BSE $100.00 $101.00 -0.99%

Bank of Beirut Pref. E BSE $25.50 $25.50 0.00%

Bank of Beirut Pref. I BSE $25.50 $25.50 0.00%

Bank of Beirut Pref. H BSE $25.70 $25.50 0.78%

BLOM Preferred 2011 BSE $10.20 $10.20 0.00%

BLC Pref A BSE $100.00 $103.00 -2.91%

BLC Pref B BSE $100.00 $100.00 0.00%

BLC Pref C BSE $100.00 $100.00 0.00%

Bemo Preferred 2013 BSE $101.00 $101.00 0.00%

* 25 August 2006 = 100

1050

1100

1150

1200

1250

Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14

BLOM Stock Index HI: 1,234.30

LO: 1124.74



S A L

Real Estate

Mkt 04/07/2014 27/06/2014 % Change

Solidere (A) BSE $13.00 $13.33 -2.48%

Solidere (B) BSE $13.01 $13.29 -2.11%

Solidere (GDR) LSE $13.00 $13.75 -5.45%

In the real estate sector, Solidere A and B shares

followed the prevalent downward trend losing

2.48% to $13.00 and 2.11% to $13.01, respectively.

Manufacturing Sector

Mkt 04/07/2014 27/06/2014 % Change

HOLCIM Liban BSE $13.97 $15.13 -7.67%

Ciments Blancs (B) BSE $3.50 $3.50 0.00%

Ciments Blancs (N) BSE $2.75 $2.75 0.00%

In the Industrial Sector, HOLCIM plummeted by

7.67% to settle at $13.97.

In the retail sector, RYMCO gained 0.37% to reach

$2.70.

Funds

Mkt 04/07/2014 27/06/2014 % Change

BLOM Cedars Balanced

Fund Tranche “A” ----- $7,321.22 $7,315.63 0.08%


Fund Tranche “B”

----- $5,232.89 $5,228.81 0.08%


Fund Tranche “C”

----- $5,560.51 $5,556.27 0.08%

BLOM Bond Fund ----- $9,653.12 $9,660.36 -0.07%

Investors may remain on the sidelines for some

time to assess the political and security

developments. Accordingly, stock market activity

may decline and can be accompanied by an

increased volatility.

Retail Sector

Mkt

04/07/2014

27/06/2014

% Change

RYMCO BSE $2.70 $2.69 0.37%

ABC (New) OTC $33.00 $33.00 0.00%

Tourism Sector

Mkt 04/07/2014 27/06/2014 % Change

Casino Du Liban OTC $380.00 $380.00 0.00%

SGHL OTC $7.00 $7.00 0.00%



S A L

Foreign Exchange Market

Lebanese Forex Market

04/07/2014 27/06/2014 % Change

Dollar / LP 1,512.00 1,511.00 0.07%

Euro / LP 2,048.24 2,053.06 -0.23%

Swiss Franc / LP 1,684.17 1,687.75 -0.21%

Yen / LP 14.77 14.86 -0.61%

Sterling / LP 2,585.36 2,566.52 0.73%

NEER Index** 131.34 132.27 -0.70%

*Close of GMT 09:00+2

**Nominal Effective Exchange Rate; Base Year Jan 2006=100

**The unadjusted weighted average value of a country’s currency relative to all major

currencies being traded within a pool of currencies.

Demand for the dollar strengthened over the past week, as shown

by the Lebanese pound’s peg against the dollar, that reached $/LP

1510-1514 with a mid-price of $/LP 1512, from last week’s quote of

$/LP 1509-1513 with a mid-price of $/LP 1511. Foreign assets

(excluding gold) at the Central Bank reached $37.07B by June

compared to $36.37B by May. Meanwhile, the dollarization rate of

private sector deposits stood at 65.70% in April compared to

66.1% in December 2013.

The improving macroeconomic backdrop in the US boosted the

dollar against the euro this week. With unemployment falling to

around a six-year low in the US, chances of the Federal Reserve

bringing forward a rise in the interest rates are higher. Labor

Department statistics showed that the US economy created

288,000 jobs in June, exceeding the 215,000 initially forecasted by

economists. As for the euro, it lost 0.23% against the dollar to

reach €/$1.3587 on Friday. The currency was negatively impacted

by Mario Draghi’s comments which confirmed that stimulus

measures will be pursued.

Nominal Effective Exchange Rate (NEER)

As for gold, the price of the ounce rose by 0.26% from last week’s

$1,317.76 to $1,321.20 on Friday as downside risks still threaten

the Eurozone’s economy. German factory orders fell by 1.7% in

May compared to a 1.1% forecasted decline. By Friday July 04

2014, 12:30 pm Beirut time, the dollar-pegged LP appreciated

against the euro going from last week’s €/LP 2,053.06 to €/LP

2,048.24. The Nominal effective exchange Rate (NEER) lost a

weekly 0.70% to 131.34 points, while its year-to-date gain stood at

1.77%

Money & Treasury Bills Market

Money Market Rates

Treasury Yields

04/07/2014 27/06/2014 Change bps

3-M TB yield 4.39% 4.39% 0

6-M TB yield 4.87% 4.87% 0

12-M TB yield 5.08% 5.08% 0

24-M TB coupon 5.84% 5.84% 0

36-M TB coupon 6.50% 6.50% 0

60-M TB coupon 6.74% 6.74% 0

04/07/2014 27/06/2014 Change bps

Overnight Interbank 3.00 3.00 0

BDL 45-day CD 3.57 3.57 0

BDL 60-day CD 3.85 3.85 0

In the course of the week ending June 19, 2014, broad Money

M3 expanded by LP 326B ($216.47M), to reach LP 172,966

($114.74B). M3 growth rate reached 7.12% year-on-year and

3.22% on a year-to-date basis. As for M1, it plummeted by LP

196B ($130.24M) due to a decline in money in circulation by LP

93B ($61.69M), and in demand deposits by LP 103B ($68.33M).

Total deposits (excluding demand deposits) grew by LP 522.67B

($34.67M), as deposits denominated in foreign currency rose by

$194M and term and saving deposits in LP grew by LP 230B.

Over the same period, the broad money dollarization went up

from 59.25% to 59.31%. According to the Central Bank, the

overnight interbank rate was at 3% in April 2014 compared to

2.75% in March.

In the TBs auction held on 26th of June 2014, the Ministry of

Finance raised LP 1142.21B ($757.69M), through the issuance of

1Y bills and 2Y, 3Y and 10Y notes. The 10Y notes captured a

share of 84.74% of the total while the 1Y bill and the 2Y and 3Y

notes accounted for 1.88%, 9.42% and 3.96% respectively. The

1Y bills yielded 5.08%, while the average coupon rates for the 2Y,

3Y, and 10Y notes stood at 5.84%, 6.50% and 7.98%,

respectively. New subscriptions exceeded maturing T-bills by LP

959.07B ($636.20M).

110

115

120

125

130

135




S A L

Eurobond Market

Eurobonds Index and Yield

03/07/2014 26/06/2014 Change Year to Date

BLOM Bond Index (BBI)* 108.020 108.118 -0.09% 2.25%

Weighted Yield** 5.23% 5.22% 2 21

Weighted Spread*** 351 358 -7 -79

*Base Year 2000 = 100; includes US$ sovereign bonds traded on the OTC market

** The change is in basis points ***Against US Treasuries (in basis points)

Eurobonds Lebanese Government

Maturity - Coupon 03/07/2014

Price*

26/06/2014

Price*

Weekly

Change

%

03/07/2014

Yield

26/06/2014

Yield

Weekly

Change bps

2015, Jan - 5.875% 101.497 101.576 -0.08% 3.02% 2.98% 5

2015, Aug - 8.500% 105.341 105.468 -0.12% 3.47% 3.44% 3

2016, Jan - 8.500% 107.008 107.148 -0.13% 3.78% 3.75% 4

2016, May - 11.625% 113.841 113.983 -0.12% 3.82% 3.82% 0

2017, Mar - 9.000% 111.746 111.85 -0.09% 4.36% 4.35% 1

2018, Jun - 5.150% 101.401 101.498 -0.10% 4.76% 4.73% 2

2020, Mar - 6.375% 104.632 104.722 -0.09% 5.42% 5.40% 2

2021, Apr - 8.250% 114.713 114.705 0.01% 5.61% 5.61% -1

2022, Oct - 6.100% 101.537 101.702 -0.16% 5.86% 5.84% 2

2023, Jan - 6.00% 100.475 100.54 -0.06% 5.93% 5.92% 1

2024, Dec - 7.000% 105.744 105.701 0.04% 6.24% 6.25% -1

2026, Nov - 6.600% 101.62 101.775 -0.15% 6.41% 6.39% 2

2027, Nov - 6.75% 102.443 102.567 -0.12% 6.47% 6.46% 1

*Bloomberg Data

The Eurobonds market stretched its slight decline for another week pulling the BLOM bond index (BBI) down by 0.09% to

108.02 points. The 3-Week retreat in the market denoted the overall cautious tone of investment that followed the instability

uprisings that painted the previous weeks. The presidential vacuum and the adjournment of the parliamentary sessions also

tempered demand for Lebanon’s Eurobonds. In this context, each of the 5Y and 10Y yields on the Lebanese Eurobonds

inched up by 1 basis point (bp) to 5.08% and 6.22%, respectively.

The BBI’s weekly decline remained slower than that of the JP Morgan emerging countries’ bond index’. The latter slipped by

a weekly 0.32% to 683.8 points as emerging stocks gained the spotlights over the week. In details emerging equities rose

to 15-Month high on positive U.S jobs data and improving economic conditions in several Asian countries of which China

and India.

A 6-Year low U.S. jobless rate managed to lift investors’ optimism about the market this week. Accordingly, the safe assets

market posted negative weekly performance with the 5Y and 10Y Treasury yields edging up by 10 bps and 12 bps to 1.74%

and 2.65%, respectively. Consequently, the 5Y and 10Y spreads between the Lebanese Eurobonds and their U.S

benchmarks narrowed by 9 bps and 11 bps to reach 334 bps and 357 bps, respectively.

Lebanon’s credit default swap for 5 years (CDS) was last trading between 326-356 bps, narrowing by an average of 9 bps. In

regional economies, CDS quotes in Saudi Arabia and Dubai were last trading at 48-56 bps and 155-162 bps compared to last

week’s quotes of 45-55 bps and 133--143 bps, respectively. As for emerging economies, CDS quotes in Brazil and Turkey

widened from last week’s levels of 137-139 bps and 173-177 bps to close at 145-147 bps and 177-183 bps, respectively.

4.50%

5.00%

5.50%

6.00%

6.50%


Weighted Effective Yield of Eurobonds



S A L

ECONOMIC AND FINANCIAL NEWS

BLOM Lebanon PMI Historical Readings

Source: Markit, Blominvest Bank

BDL’s Total Assets

(In $B)

Source: BdL

BLOM Purchasing Managers’ Index Recorded an

Eight-Month High in June

The BLOM Lebanon PMI went up from 48.0 in May to 49.1 in

June, reflecting a slower rate of contraction. June’s PMI

recorded an eight-month high, caused by output levels and new

order intakes decreasing at a slower pace. Moreover, due to

the eased contraction, businesses elevated both their

employment levels and buying levels for the first time in five

months.

Remarking on the latest survey results, Ms Maya Mantach,

Head of Equities at Blominvest Bank said:

“The PMI is mimicking the private sector’s will and efforts to

rise after each slowdown. It reached an eight-month high in

June thanks to an unwinding security situation and despite the

continuation of political void. Business orders were still weak

given that domestic and regional demand remained under

pressure, but the supply side was up. The companies’

anticipation of a return to growth led them to increase staffing

and stock up. Looking ahead, the recent bombings will

probably stifle July’s results but the contained situation and

progress on the political front can keep the economic activity

on track.”

BDL’s Total Assets Edged up by 2.76% to $82.73B

by June

According to the Central Bank’s (BDL) balance sheet, total

assets registered a 2.76% monthly rise to reach $82.73B by

end of June.

The bank’s securities portfolio escalated by 0.97% to $12.65B

and its foreign assets edged up by 2.63% to $37.07B. Likewise,

loans to the local financial sector grew from $3.26B in May to

$3.38B in June. Gold reserves also registered a 1.72% upturn to

$12.11B, noting that during this period price of gold was rising.

On the liabilities side, financial sector deposits grew by 2.02%

month-on-month to $61.66B while public sector deposits

augmented 8.29% to $7.75B by end of June.

50.3

47.6

44.9

47.0

49.1

45.1

49.0

44.7

45.5

46.2

48.5

48.0

49.1

2009 2010 2011 2012 2013 2014

47.22

58.23

66.12

74.36 76.90

82.73



S A L

Monthly Electricity Production

(In KWH)

Source: BdL

Historical Premiums and Claims

(In $M)

Source: Insurance Control Commission (ICC)

Electricity Production Stood at 1,039M of KWH in

April

According to the Central Bank (BdL), Electricity production

reached 1,039M of Kilowatt-Hour (KWH) in April 2014 compared

to 912M KWH during the same month last year, posting a 14%

yearly upsurge. However, this supply is far below demand

which has been amplified by the presence of 1.5M Syrian

refugees.

Treasury transfers to EdL amounted to $245.68M in the first 2

months of 2014. Yet, if fuel and gas subsidies will not be

increased to meet demand, extreme electricity rationing would

be introduced, whereby customers would experience more

than 14 hours per day of blackout. Currently, most parts of

Lebanon, except Beirut, have 8-10 hours of electricity rationing

per day.

In addition, 2 or 3 power plants have been temporarily stopped

to limit fuel and gas oil consumption.

2013’s Insurance Penetration Rate in Lebanon

Stood at 3.2%

Lebanon ranked 46th globally and 1st in the MENA region in

terms of insurance penetration rate that reached 3.2%,

according to the latest report published by Swiss Re, a leading

global reinsurer. The country improved from 2012’s standings

when Lebanon grasped the 48th rank globally and the second

place after Morocco.

In more details, 2013’s insurance penetration rate for non-life

business was 2.2%, while life segment grasped the remaining

1.0%. Nonetheless, Lebanon’s insurance sector performed

better than Morocco (47th), Bahrain (60th) and Jordan (62nd).

Moreover, Lebanon’s insurance density (premium per capita)

ranked 4th among the MENA countries and captured the 50th

place globally, standing at $341/capita, behind Bahrain (ranked

37th globally) and ahead of Kuwait (ranked 51st globally). Yet,

Lebanon grasped the 65th rank for its total premium volume in

2013 with the latter edging up by a yearly 12.8% to $1.48B. In

details, life premiums, which almost constituted 31.2% of total

premiums, witnessed a 24.4% y-o-y surge to $469M. This could

be explained as an improving status of the sub-sector within

the Lebanese market this year. However, non-life premiums

increased by 8.1% to $1.01B by the end of 2013.

600

700

800

900

1000

1100

1200

-

200

400

600

800

1,000

1,200

1,400

1,600

2006 2007 2008 2009 2010 2011 2012 2013

Total Written Premiums Total Claims Paid



S A L

Total Number of Outstanding Payment Cards

Source: BdL

Payment Cards Reached 2.18 M by the End of 2013

Retail banking activity in Lebanon was one of the few indicators

to post prosperous activity in 2013. The number of payment

cards soared 34.0% in the last five years to hit 2.18M cards by

the end of 2013, out of which a yearly 17.3% jump in 2013.

Payment cards are divided into four categories; Debit, Credit,

Charge and Prepaid cards.

Debit cards continued to be the most popular in 2013

accounting for 54.6% of the total as the domiciliation of salaries

enhanced their uses. Credit cards came in the second rank with

a 22.0% stake, followed by prepaid (15.1%) and charge cards

(8.3%). Moreover, Residential card holders represented 95.4%

of the total, while non-residents took the remaining stake. This

improvement in the cards markets came in line with the

increase in the number of ATMs that reached 1,516 in 2013

compared to 1,433 in 2012.

Mount Lebanon saw the highest increase in the number of new

ATMs that reached 459 by the end of 2013, while Beirut

remained the most populated by ATMs grasping 33.7% of the

total. As for Point of Sales (POS), the number of contracts

signed with merchants went up by 3.1% to 35,492 as the

majority of Lebanon’s consumers are heavily relying on

electronic payment to execute their purchases on the expense

of cash.

2009 2010 2011 2012 2013

1,630,036 1,676,372 1,783,962

1,861,849

2,183,996



S A L

CORPORATE

DEVELOPMENTS

Financial Highlights of BIT and NECB in 2012

(In $M)

BIT NECB

Total Assets 689.8 379.3

Total Equity 79.93 24.8

Net Profit 1.6 1.4

Source: Companies’ Websites

Solidere A and B Shares during 2013

Source: BSE and BLOMInvest Research Department

Merger between BIT and NECB banks Leads to

$1.1B in Total Assets

In line with the Central Bank’s attempt to decrease the number

of banks in Lebanon due to the fierce competition, Banque de

L’Industrie et du Travail and the Near East Commercial Bank are

planning to merge together. However, the contract still awaits

the authorization of the Central Bank.

The bank will be called BIT, having $1.1B total assets and

$200M private equity. The bank will offer retail, commercial and

private banking services.

Solidere calls for a Second General Assembly

The Lebanese Company for the Development and

Reconstruction of Beirut Central District (Solidere) invites the

shareholders of A&B shares to a second general assembly on

Monday 21st of July 2014 at 9:30 AM in Biel, Downtown, due

to a lack of quorum in the first meeting.

The meeting’s agenda includes discussing and approving the

company’s financial results for year 2013, listening to the Board

of Directors and auditors’ reports, as well as discharging the

BOD’s chairman and members from their duties for year 2013.

In case the required quorum wasn’t complete, a third general

assembly will be held for the shareholders of A&B shares on the

12th of August 2014 at 9:30AM in Biel, Downtown.

All shareholders are allowed to revise the financial statements

15 days ahead of the general assembly’s meeting.

Shareholders can come in person or via a proxy shareholder.

$10.00

$10.50

$11.00

$11.50

$12.00

$12.50

$13.00

$13.50

$14.00

$14.50

solidere A solidere B



S A L

FOCUS IN BRIEF

Lebanese Steel Market – 2013 Update

It has been well established that the year 2013 was a challenging one for Lebanon on the economic, political and security

fronts. The following attempts to answer the following questions: Did this rough climate negatively impact the Lebanese

Steel market? How did global steel trends reflect on the local market?

Global Market Characteristics

Global Steel Production Steel Production of Top Countries in % of the Total, 2013

Source: World Steel Association

According to the World Steel Association, crude steel production totaled 1.61B tons in 2013. After the 16% annual growth

rate in 2010, the industry has been growing at the slower pace of 7% in 2011, 1% in 2012 and 3% in 2013. The World Steel

Association affirmed that although 2013 has been a challenging year for the industry due to overcapacity and to raw

material costs, the growth has exceeded initial forecasts. This was due to the economic recovery in the United States and

to the bottoming out of the recession in the Eurozone which may even push Eurozone steel demand into positive territory in

2014.

Ernst and Young experts have nominated “staying cost competitive while maintaining enterprise value” as the single

biggest challenge for the steel industry in 2013. One way to achieve this is reducing production from loss making plants to

stabilize prices and deal with any oversupply on the market.

In 2013, the largest producer was China with 779M tons or 49% of total production followed by Japan with a stake of 7%,

the United States and India with each a 5% share in the total and Russia with a 4% stake. As for MENA countries, Turkey

occupied the 8th

worldwide spot, Iran the 15th

, Egypt the 23rd

, Saudi Arabia the 27th

, the United Arab Emirates the 37th

and

Qatar the 40th

.

In terms of companies, the largest steel producers were ArcelorMittal with 96.1M tons (headquartered in Luxembourg),

Nippon Steel & Sumitomo Metal Corporation (headquartered in Japan) with 50.1M tons, Hebei Steel Group (headquartered

in China) with 45.8M tons, Baosteel Group (headquartered in China) with 43.9M tons and Wuhan Steel Group

(headquartered in China) with 39.3M tons.

-8%

16%

7%

1%

3%

-10%

-5%

0%

5%

10%

15%

20%

-

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2009 2010 2011 2012 2013

Global Steel Production, in millions of tons

Annual Growth Rate , in %

49%

7%

5%

5%

4%

China Japan USA India Russia



S A L

Local Market Characteristics

The Lebanese steel market is characterized by a high concentration of firms. The largest importers such as Demco Steel,

Société Libanaise pour les Métaux or Tannous Group, Al Moussawi Trading Company hold a market share of over 60%.

Smaller importers such as Jean Claude Yared & Co, Ayoub Beaino and Philippe Kheir split what is left of market demand.

Lebanon is a net importer of steel with the metal’s import constituting a share of 4% of total imports in 2013. Lebanese

steel companies import several types of steel: Bars & Rods, Flat Steel as well as Tubes and Pipes. Bars and rods are mainly

used for construction purposes and are the most demanded types in Lebanon, flat steel is used for industrial manufacturing

while tubes and pipes are needed for transporting gases and liquids.

Imports by Type of Steel in 2013 Main Source of Imports in 2013

Source: Lebanese Customs

However, very little advantages allow Lebanon to become an exporter of steel. According to market heavyweights, the cost

of financing (e.g. interest rates), the payment of salaries and electricity costs (mainly from private generators) are

considered as the largest cost burdens. In countries such as Turkey, exports of steel are rendered favorable as the

government offers steel companies monetary incentives: the higher a company’s exports, the lower its energy costs. China

was able to make the jump from a net steel importer to exporter not due to economies of scale or technological efficiencies

but rather due to substantial governmental energy subsidies.

Looking at the value of Lebanese steel imports over the years uncovers a downward trend, which portrays only partially

what is going on in the market. The value of steel imports reached $923.88M in 2013 compared to $947.95M in 2012.

According to market players, this drop should not be relied upon when analyzing the market since it is due to downward

price fluctuations on global markets. Importers affirmed that the market price of their most demanded product, reinforcing

bars for construction, has dropped from around $725/ton in 2012 to $660/ton in 2013. The subdued prices are not only the

result of lower international prices but also due to the invasion of the Lebanese market by the cheaper Chinese products.

The latter represented 35% of total steel imports in 2013, followed by 25% for Ukraine and 17% for Turkey. Ukraine still

holds a considerable spot in the eyes of some Lebanese importers who believe that although Chinese products are much

cheaper their quality doesn’t match that of the Ukrainian products.

67%

12%

5%

Bars and Rods

Flat steel

Tubes and Pipes

35%

25%

17%

8%

2% 2%

2%

1%

1% 1% 1% 1% China

Ukraine

Turkey

Egypt

Belarus

Russian Federation

Italy

Spain

India

Korea

France



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Therefore, it is important to track not only the value of steel imports but also the volume of steel imports. The annual growth

rate in steel imports tonnage has been steadily hovering around 6% since 2010 and reached a total of 1.42M tons in 2013.

2011 2012 2013

Total Imports of Steel, In Net tons 1,269,502 1,345,250 1,422,499

Total Imports of Steel, In USD 967,405,000 947,953,000 923,886,000

Price (Value/Volume of Steel Imports) 762 705 649

Do the higher quantities of imported steel in 2013 mean that steel demand has been unfazed by the Syrian crisis and the

slowdown in the construction sector? No. In fact, the 6% increase in steel imports tonnage over the past three years pales

in comparison with the double-digit growths of 31% , 12% and 19% respectively registered in 2007,2008 and 2009.

The surrounding and internal conflicts in Lebanon during 2013 have weighed negatively on overall growth, construction

activity and therefore the steel market. Construction activity is tightly linked to steel demand as the imported bars and rods

mainly used for that purpose constituted 67% of total imports in 2013. According to data released by the Orders of

Engineers in Beirut and the North, construction activity retreated by 8% in 2013 as the number of issued permits declined

from 18,193 in 2012 to 16,724 in 2013. The total construction area authorized by permits was down by 13% in 2013 to

12.80M sqm, below last year’s 14.68M sqm. Moreover, while the annual growth rate of steel imports stood at 19% in 2009

in sync with an 8% upturn in real estate transactions that same year, the annual growth rate of steel imports eased to 6% in

2013 in line with an 8% downturn in real estate transactions that same year.

The steel market has therefore had a challenging year as market aficionados highlighted a longer operating cycle in 2013.

While receivables days used to be 15 to 20 days prior to the slowdown, it has extended to 60 days. The longer it takes the

client to pay its dues, the lower the liquidity on the market. A market player also portrayed the mark-up as going down in

2013: “If importers were buying their goods at $600 and selling at $700, they are now purchasing steel at $500 and selling

at $540.”1

he said. The Lebanese market, heavily reliant on imports, is also vulnerable to political and social developments in

the countries exporting to Lebanon. Importers who trade primarily with Ukraine reported up to a 2 months delay in the

arrival of goods, yet another factor extending the length of the operating cycle.

In spite of its net importer position, Lebanon exports scrap metal. After exporting 400,000 tons of scrap metal at a price of

$402/ton in 2012, Lebanon exported 300,000 tons at the price of $350/tons in 2013, the main importer of Lebanese scrap

being Turkey. The drop in the prices of the exported scrap metal follows the international downward trend.

As for production of steel, it has been inexistent in Lebanon since 2003, when Consolidated Steel Lebanon S.A.L shut down

due to elevated input costs. However, In spite of this backdrop, Kfoury Metals, specializing in reinforcing steel bars (the

company buys scrap from Lebanon and turns it into rebars for construction) and located in Salaata-Batroun, entered the

market in full swing in early 2012. Land and equipment costs surpassed $80M. The plant’s maximum production capacity

was set at 350,000 tons of steel. Kfoury Metals is seeking to become a local steel producer via a two-fold survival strategy:

First, ensuring energetic self-sufficiency through renewable energy sources, notably solar power and second purchasing

raw steel at subdued prices from countries such as India.

Moving away from the net importer position requires much effort, but the idea is present on the Lebanese market. Once a

competitive edge is acquired, Kfoury Metals is seeking to sell billets to Syria Jordan and Egypt. Chances of success in those

markets are higher since China, the fiercest international competitor, is not their main supplier. Chinese billets are subject to

high taxes which reduce the appeal of these products in Syria, Jordan and Egypt. On these markets, Kfoury’s main

competition is not China but rather Ukraine.

1 A mere illustrative example to show the extent to which the mark-up has gone down



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The Lebanon Brief

Your Investment Reference

S A L

Research Department:

Lana Saadeh [email protected]

Riwa Daou [email protected]

Mirna Chami [email protected]

Marwan Mikhael [email protected]

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