Rolling Plus investing $1.07 billion in Egypt tyre factory

Rolling Plus Chemical Industries Co. has committed €1 billion ($1.07 billion) of investment in a new tyre factory in Egypt. The investment is based on a contract signed between Rolling Plus Suez Canal Economic Zone. Egyptian Prime Minister Mustafa Madbouly attended the contract signing ceremony.

Rolling Plus is working with engineering consultancy Black Donuts on the project, which suggests the latest project is one of the two Egyptian tyre factories suggested earlier this year (the second being an apparent joint-venture with an unnamed Chinese tyremaker).

The new Rolling Plus tyre factory will be located in the Suez Canal Economic Zone and will cover an area of 400,000 square metres. Annual production capacity will be 7 million tyres, with construction spread across three phases.

Phase one focuses on site construction and the building production lines for passenger car tyres, with an initial annual capacity of 2.5 million tyres. Investment ranging from €400 million to €450 million will drive this phase, aiming to meet 50 per cent of local market tyre demand.

The second phase will pivot towards producing tyres 3.5 million light commercial vehicle tyres and aims for 40 per cent of the domestic market.

The final phase adds production capacity for 1 million truck tyres a year.

Walid Gamal El-Din, chairman of the Suez Canal Economic Zone, underscored the significance of tyre factory project, emphasizing that it will create approximately 1,000 direct and indirect job opportunities within the Main Development Co., the investment arm of the economic authority:

“The significance of this project lies in the localization of the tyre industry, especially with the presence of a technical partner, the Finnish company ‘Black Donuts’, which will provide all technical consultations for the project’s designs from its inception to tyre manufacturing and its stages.”

Main Development Co. managing director Abdul Nasser Rafai and Rolling Plus CEO John Barkat signed the contract.

In August, the Egyptian government’s Supreme Council for Automotive Industry announced mechanisms for localizing the industry in Egypt, with Prime Minister Madbouly reportedly offering incentives for those localizing the production of cars and other automotive components. At the time, local news sources reported that the state is prepared to provide land and even build factories.

For those wondering about the provenance of the company, Reuters reports that Rolling Plus Chemical Industries Co., which is led by John Barkat, has Cypriot and Saudi investors. Few other details are publically available.

Egyptian replacement tyre market prices up 300%

News of the 1-billion-euro Egyptian factory comes amidst hyper-inflation in domestic market tyre prices. Local news sources report that the Egyptian inflation rate has been between 20 and 30 per cent this year. However, average tyre prices have been rising at 10-times that rate, with some up 300 per cent year-on-year, according to Enterprise News. The causes? Dwindling foreign exchange reserves and import restrictions. The latter point is underlined by the fact that Egypt currently imports 100 per cent of its car tyres. For those who are wondering how that statistic could be correct in light of the fact that the Egyptian Pyramids tyre factory started manufacturing as recently as July 2020, industry sources told Tyres & Accessories that Pyramids is not currently producing car tyres and is rather focusing on scooter, two-wheel and other small diameter products.

Egypt consumed around 10 million tyres in 2022, of which only 1.5 million (15%) were produced domestically, with the rest of the supply coming from imports, according to the Arab Federation of Tire and Rubber Industries. Meanwhile, Egypt exported 680,000 tyres in 2022, a figure that represents 45 per cent of the largest volume tyre product made in the country – truck tyres.

The trend represented by these figures was exacerbated by the closure of domestic tyremaker Trenco, which had produced enough tyres to supply 30 per cent of the domestic market prior to its closure in 2022. That leaves Pirelli/Prometeon and Pyramid Tires as the only tyre manufacturers in Egypt, supplying around 8.2 per cent of domestic demand, the Arab Federation of Tire and Rubber Industries head, Tarek Ahmed told Enterprise.

The reduction of upstream supply in the region has also impacted tyre production. The closure of a nearby Kordsa plant, which used to provide nylon tyre cords is said to have been a particularly relevant example: “We were forced to shut down as supply for tyre production dropped and the MENA region’s economy crippled” former Kordsa partner, Hossam Lasheen told Enterprise.

Finding a trained workforce is another challenge, Black Donut sales representative, Ahmed Abou El Nasr explained. Indeed, the average age of workers at Trenco was 55 prior to that factory’s closure in 2022. While a younger workforce may be desirable on the one hand, training to the same skill level is also a challenge.

The solution to local market supply problems? Several private companies and the Arab Organization for Industrialization (AOI) are planning tyre domestic tyre production. Specifically, there are at least two tyre factory project gearing up. Of these, the Rolling Plus factory is apparently closest to fruition. But the AOI signed an agreement last November with Hill International to set up a car, truck, tractors and heavy equipment tyre factory. And it is not clear if the belt-and-road joint venture referred to in statements in April 2023 is the same project as the Hill International venture or a third factory.

Reasonably low labour and land costs – especially if the latter is subsidised – paired with rapidly growing tyre sell-out pricing offer arguments in favour of investment in an Egyptian tyre factory. The lack of local supply combined with a growing population are others. The paucity of raw materials available domestically increases Egypt’s dependence on imported input components. In light of the volatile foreign exchange context, that point could undo some of the other positives. Those negatives suggest that, with as many as three Egyptian tyre factory projects in the offing, getting to the production phase first is critical in order to establish a strong domestic market position and therefore to make it less attractive to competitors seeking to adopt a similar strategy.