Turkish scrap and steel products markets – March 2023
Content
- Summary
- Steel scrap imports
- Steel scrap stocks
- Steel production
- Semi products capacity utilization rate
- Crude steel production costs
- Square billet imports and market structure
- Slab market structure
- Long products balance
- EAF rebar margin
- Turkish lira rate
- EAF rebar production costs
- Flat products balance
- HRC production costs
- Flat products imports
- Steel scrap price forecast
- Conclusions
Summary
- Construction in the earthquake-hit region in Turkey had not started in March. The total number of tenders held by the government by then was 77, with approximately 41,950 housing projects covered by these tenders. However, the total number to be rebuilt is estimated at around 441,000. There were some doubts regarding the expectations about rebuilding the earthquake-hit region, though it was seen that the government was trying to speed things up.
- Turkey is getting ready for presidential and parliamentary elections to be held on May 14, which may lead to a second round for the presidential election which would be held on May 28. As most parties expect a change in economic strategy if there is a change of government, many are avoiding taking risks. Also, credit lines are tight, cash flow is slow and interest rates are on the high side, making trading difficult.
- The many uncertainties surrounding Turkey’s steel sector have been exerting pressure on the scrap market. In the last ten days of March, deep-sea scrap prices in Turkey declined sharply amid the lack of steel sales. Deep sea scrap prices had begun March at $445/mt CFR, rose $460/mt CFR in the middle of the month, and closed the month at $435-440/mt CFR.
- Along with the prevailing economic uncertainties, Turkey’s finished steel sales were still sluggish, particularly as regards exports. Turkish mills needed another downward price revision to become competitive again in the international steel markets. Investigations of ground conditions in parts of the earthquake-hit region were completed and construction permits were signed. This was expected to result in some real demand from the region, though it was not expected to have such a big impact as traders’ inventories are still waiting to be directed to construction sites.
- The decrease in natural gas and electricity prices allowed Turkish mills to reduce BOF steel production costs, and stabilized EAF steel segment production costs in March. The reduction in raw material prices in April and the announced discounts on energy prices will allow Turkish producers to decrease finished steel production costs by at least $15-30/mt, SteelOrbis estimates. This will increase Turkish mills’ competitiveness and allow for a more flexible price policy.
Turkey’s steel scrap imports decline in March
The sharp uptrend observed in Turkey’s import scrap market at the end of February continued in early March at a slower pace. However, as it was understood that the high expectations resulting from the Turkish government’s announcement that large volumes of steel would be needed to rebuild the earthquake-hit southeast region would not be met, Turkish producers almost stopped their deep sea scrap purchases. According to SteelOrbisʼ estimates, in February scrap imports to Turkey rose by 25-30 percent month on month to 1.7 million mt and then declined to 1.4 million mt in March.
Turkey’s steel scrap stocks rise in anticipation of demand growth
The sharp uptrend observed in Turkey’s import scrap market at the end of February continued in early March at a slower pace. However, as it was understood that the high expectations resulting from the Turkish government’s announcement that large volumes of steel would be needed to rebuild the earthquake-hit southeast region would not be met, Turkish producers almost stopped their deep sea scrap purchases. According to SteelOrbisʼ estimates, in February scrap imports to Turkey rose by 25-30 percent month on month to 1.7 million mt and then declined to 1.4 million mt in March.
Crude steel production fails to resume fully in March
Turkey’s steel market was not supported by demand, whether domestic or export. On March 22, during an online event held by the Turkish Steel Exporters Association, several market players reported that construction in the earthquake-hit region had not started yet. The total number of tenders held by the government by then was 77, with approximately 41,950 housing projects covered by these tenders. However, the total number to be rebuilt is estimated at around 441,000. Turkey’s EAF-based crude steel production in March was up nine percent to 1.8 million mt. BOF-based crude steel production did not yet recover, only up by 0.15 million mt to 0.6 million mt, according to SteelOrbisʼ data. One of the main BOF steel producers Isdemir mill (5.25 million mt of BOF steel production capacity) had not yet returned to the market in March. The plant conducted test runs of its BOF furnaces and planned to return gradually to the Turkish market in April and May.
Turkey’s semi product capacity utilization rate still at low level
In March, utilization rates in Turkey recovered to 49 percent for slab and 60 percent for square billet. Only one plant had not resumed production, the Isdemir plant (5.25 million mt of BOF steel). Utilization rates remained at a low level. Turkish mills were facing difficulties in terms of finances, disrupted cash flows, liquidity issues and problematic credit lines. The upcoming elections were causing uncertainties in economic strategies. Reconstruction works in the earthquake-hit region were expected to take longer than initially planned. The lack of demand was the main problem in the market.
Crude steel production costs in Turkey
In March, lower energy prices in Turkey allowed producers to decrease BOF-based crude steel production costs and stabilized their EAF-based crude steel production costs. At the end of January this year, BOTAŞ announced that starting from February 1 it would reduce the wholesale prices of natural gas for large industrial enterprises by 13-17 percent. After that, price adjustments took place in March, down by 20 percent. In addition, at the end of 2022, the regulator of the energy market of Turkey had announced a reduction of 16 percent in electricity prices for industrial consumers. These measures made it possible to reduce BOF-based crude steel production costs and stabilize EAF-based crude steel production costs, regardless of the average monthly increase in scrap prices.
The energy costs of Turkish steel mills are expected to continue to fall in the coming months after a sharp increase in 2022, which negatively affected the export competitiveness of the Turkish producers. The Turkish Oil Pipeline Corporation (BOTAŞ) reduced wholesale natural gas prices for large industrial enterprises by 20.01 percent from April 1 compared to the previous month. This is the third decrease in the cost of gas in the country for industrial consumers in 2023. Turkish president Recep Erdogan stated that from April 1 the prices of electricity for all consumers would be reduced by another 15 percent. The reduction in raw material prices in April and the announced reductions in natural gas and electricity prices will allow Turkish producers to decrease finished steel production cost by at least $15-20/mt for BOF steel products and by at least $25-30/mt for EAF steel products, according to SteelOrbisʼ estimates.
Structure of Turkish square billet market
The billet market in Turkey in the first half of March was relatively active and optimistic in terms of prices. Import levels increased by $20/mt to around $655/mt CFR on average. At that time, billets of at least 10 different origins were represented in the Turkish market since many sellers counted on strong longs demand from the earthquake-hit region. However, competition in the import billet segment in Turkey pulled down workable levels first by $15-20/mt and later, with the support of falling scrap prices, by another $20/mt to $620/mt CFR on average. At the end of the month, buyers’ price ideas dropped to below $600/mt CFR, following the cuts announced in energy tariffs and the resulting expected decline in production costs. According to SteelOrbisʼ data, square billet imports amounted to 850,000 mt in the first quarter of the year, up 9.3 percent quarter on quarter. The main exporter to Turkey, Russia, increased its export volumes by 7.7 percent, continuing deliveries despite the war in Ukraine. The increase in import billet volumes to Turkey in the February-March period was due to the anticipated supply shortage in meeting the needs for the reconstruction of the earthquake-affected region . This led to the emergence in Turkey of non-traditional suppliers to the country. But at the end of the first ten days of March, it became clear that reconstruction work would not be so rapid and that the billet market was significantly oversaturated with material, as a result of which prices began to decrease considerably.
Structure of Turkish slab market
In March, Turkish hot rolled coil (HRC) producers remained interested in purchases of import steel slab, while aiming to secure their needs amid expectations of higher rolling capacity utilization rates for finished steel. In addition, there was a certain shortage of domestic slab production in the market. Russian flats producers were minimally active in HRC exports in March to Turkey, a regular destination for them, and chose to trade slab instead of HRC. Two lots of slab were sold at $645-650/mt CFR to Turkish mills, but by the end of March the workable slab prices for Russian material declined to $600-610/mt CFR for sanctioned products and to around $620-630/mt CFR for non-sanctioned products.
Low end-user demand results in long product surplus in Turkish market
In the longs segment, some excitement was still seen in the first half of March in the Turkish domestic market, as strong demand had been expected in the earthquake-affected areas. Prices went up by around $50/mt for rebar to around $750-760/mt ex-works/FOB by mid-March. While in the domestic market restocking was quite active at the time, exports were totally silent due to the rather high price levels for most buyers and tough competition with North African and Asian suppliers. However, by the end of March, Turkey’s rebar prices had decreased significantly, to $710-720/mt FOB, with prices $10-15/mt higher for the local market. One reason was the decline in scrap prices and another was low end-user demand, while traders’ stocks were more or less full. According to SteelOrbisʼ data, long product production in Turkey in March increased by 10 percent to 1.77 million mt. Oversupply during the second half of March caused rebar prices to drop, as sales to the export markets remained challenging for Turkish producers.
Margins of Turkish EAF-based rebar producers increase
Turkish EAF-based rebar production costs stabilized at $670-675/mt on FOB basis in March , as a result of reduced energy costs, despite the rise in scrap prices. Despite the significant price drop at the end of the month, average rebar prices on FOB basis in March rose by $20/mt to $740-745/mt, and the margin of Turkish EAF-based rebar producers increased to $70/mt on FOB basis, according to SteelOrbis’ data. The reduction in scrap prices in April and the announced 20 percent reduction in natural gas prices and the 15 percent reduction in electricity prices will allow Turkish producers to decrease rebar production costs by at least another $25-30/mt, SteelOrbis expects. This will increase Turkish mills’ competitiveness and allow for a more flexible price policy. The currency depreciation will support export activities.
Devaluation of Turkish lira slows down in recent months
Over the past seven months, the devaluation rate of the Turkish lira has slowed down considerably. But the current level of the national currency exchange rate in Turkey significantly reduces import possibilities. This will be especially true in the coming months, when the country will need additional volumes of steel products and scrap to rebuild the earthquake-hit regions, but it is not yet known when the reconstruction work will really begin. The Turkish lira has depreciated by more than 30 percent in value since the start of 2022.
Turkish EAF-based rebar costs dynamic
In March, Turkish mills were resisting the uptrend seen in import scrap prices and so the upward movement slowed down. The construction steel market was still waiting for demand from the earthquake-hit region, and so exporters reduced their scrap purchases. In the last ten days of March, deep-sea scrap prices in Turkey declined sharply amid the lack of steel sales. Deep sea scrap prices began March at $445/mt CFR, rose to $460/mt CFR in the middle of the month and closed it at $435-440/mt CFR. On average, scrap prices rose by six percent to $450-455/mt CFR.
At the same time, prices of natural gas used in Turkish industry decreased in March by more than 19 percent to TRY 9,500 per 1,000 m3. The new electricity tariffs for industrial users dropped by around 20-25 percent to TRY 2.1-2.3/kWh. This allowed Turkish producers to stabilise EAF-based rebar production costs at the level of $675/mt FOB in March, SteelOrbis has calculated. The energy tariff reductions caused a $20/mt fall in steel production costs in March, but this did not help Turkish mills much, as scrap costs rose by almost $25/mt on average during March.
Turkish flat products market structure
The rather active buying activity in Turkey’s flats market, seen since the second half of February, lasted only until mid-March. Buyers were aggressively purchasing materials which had already been in stock or products with short lead times. The main reason was the obviously increased requirements for the Iskenderun region, mainly resulting in demand for cold rolled and coated steel for the construction of container homes. In addition, at the time the market was still strongly expecting solid demand for flats in the months ahead. As a result, HRC producers in Turkey quickly sold out their May production and even a good part of June production, and increased their prices. In the second half of March, demand for flats diminished in Turkey and prices started weakening. The lower scrap prices contributed to the downtrend and sales of flats had almost stopped by the end of month, partly as buyers were not ready to restock for end-of-May and June materials, not mentioning July materials. Another factor is the upcoming election, which has resulted in some projects being put on hold.
In March, flat product production in Turkey increased by 16-17 percent to 0.89 million mt, while exports declined by more than 18 percent to 0.17 million mt. Flat products consumption at the same time recovered only by 14 percent to 1.4 million mt, SteelOrbisʼ estimates.
The increase in import duty on flats was postponed for another month and would not lead to additional import volumes being booked since there was no March and April production left in the global market, but it would mean that the importers who purchased their cargoes earlier would avoid paying the higher import tax if they were unable to perform exports within the scope of Turkey’s inward processing regime.
Turkey again postpones increased import duties for flat products
Turkey once again decided to postpone the planned increase in import duties on flat steel products until May 1 It had initially planned to raise the duties in question from March 1, but subsequently the measures were postponed for one month due to the earthquakes in February. Then a second postponement was announced. The latest postponement is not expected to have a significant impact on the flat steel market in Turkey.
Turkish HRC production costs
Production costs for HRC made from BOF-origin steel in Turkey during March decreased by $25/mt to $720/mt ex-works due to a lower energy prices and coking coal. EAF-origin HRC production costs remained stable at $685/mt. The reduction in energy tariffs resulting in a decline of $15-20/mt in production costs in March, but this did not help EAF-based producers much, as scrap costs rose by almost $25/mt on average during March.
The reduction in raw material prices in April and the discounts announced for natural gas and electricity prices will allow Turkish producers to decrease BOF-based HRC production costs by at least $15/mt and EAF-based HRC production costs by at least $25/mt, SteelOrbis has calculated. This will increase Turkish mills’ competitiveness and allow for a more flexible pricing policy.
Flat products imports to Turkey
In March, flat product imports rose to 0.73 million mt month on month, according to SteelOrbisʼ data. The situation in Turkey’s import HRC segment was challenging during the month. Although material of several origins was on offer, such as Asian, Russian and Egyptian materials, these were priced much higher than the prices offered by China. While facing a slow domestic market and forced to compete with each other for buyers, Chinese traders started to provide large discounts and their prices to Turkey fell significantly. Their offers were at $675-685/mt CFR for Q195 grade at the end of March, while prices of other origins were at $760-780/mt CFR and even at $800/mt CFR and above from suppliers like Egypt and South Korea. As a result, the low Chinese prices blocked the possibility of sales by the other suppliers. However, the Chinese sellers were not able to close deals themselves since at the end of March Turkey remained uninterested in active imports due to its low demand and the large number of cargoes expected to be delivered following earlier transactions.
Steel scrap price forecast
Optimistic scrap prices scenario:
In April Turkish mills will test the market with $430s/mt CFR for benchmark HMS I/II 80:20 scrap, and $420s/mt CFR may be the bottom.
Pessimistic scrap prices scenario:
Deep sea scrap prices are set to decline when Turkish mills return to the market. SteelOrbisʼ estimates that deep sea HMS I/II 80:20 prices for Turkey will drop to $410-420 mt CFR during April.
Conclusions
- In April and May, Turkish longs producers are expected to remain largely focused on domestic rebar sales. One reason is the expected beginning of reconstruction in the earthquake-hit area which, albeit at a rather slow pace for now, will still boost trade and is foreseen to improve market sentiment. However, demand will be restrained by the upcoming elections since a lot of market players are waiting to see the political situation more clearly in order to avoid unnecessary risks. Another factor is that business activity in the main export destinations is expected to be limited for Turkish longs. While demand in the EU will most probably not recover strongly in the coming weeks, competition with North African and Asian mills will still restrict Turkey’s exports.
- Turkey’s flats market is expected to soften further in April in terms of domestic prices, given low end-user demand and very high stocks from previous purchases. Quite a few cargoes are due to arrive from Asia, Russia and Egypt, while the recovery of end-user demand is expected not earlier than May. China is expected to continue its aggressive price policy in the region.
- The reduction expected in raw material prices (especially scrap) in April and the announced 20 percent discount on natural gas prices and 15 percent discount on electricity prices will allow Turkish producers to reduce steel production costs by at least $15-25/mt for BOF steel products and by at least $25-30/mt for EAF steel products, SteelOrbis has calculated. This will increase Turkish mills’ competitiveness and allow for a more flexible price policy. Turkish mills have less opportunity to play the “high costs” card, and so their prices may decline despite their aim to keep margins high. However, no significant price fall is anticipated, since, with all the demand anticipated to come from the Iskenderun region, the main question will be timing.
- Deep sea scrap prices are set to decline when Turkish mills return to the market. SteelOrbis expects, in the optimistic scenario, that deep sea HMS I/II 80:20 prices for Turkey will drop to $420-430 mt CFR during April.