Turkish Market recap by year end 2002
It could easily be said that; 2002 can be considered as a good year when compared to previous years for Turkish Iron&Steel Industry. In early 2002, Turkish steel makers were feeling depressed due to the economic crisis in
Turkey and the stagnancy seen in the international markets. Added to that, the expectation of US administration to implement safeguard measures against steel imports made steel makers to become more distressed. But especially, after these measures were announced by US administration, Turkish producers have succeeded in taking advantage of the activity seen in the international markets and getting better results compared to recent years.
As through the whole year, sector was effected mostly by the developments in the international
scrap markets during the last quarter. Import dependent Turkish steel industry started facing problems in consequence of the decision taken by
Ukraine, one of the most important
scrap supplier to Turkish mills, to apply 30% (or €30/mt) duty on
scrap exports.
Ukrainian Governments' main target is to put its own steel producers at ease who have been suffering a huge lack of
scrap in the local market and consequently were forced to accept the high costs, by slowing down the
scrap exports. In conclusion, increasing the value added steel product exports is the main goal of the Ukrainian authorities rather than exporting
scrap.
It is obvious that
Turkey would not be the only nation to be negatively effected by
Ukraine's desicion. EU nations have forecasted a serious supply shortage as the imported
scrap amount from
Ukraine will be reduced, and getting retaliatory measures to put pressure on Ukranian authorities. In this respect, the most serious development seen is a significant cut in EU's import quotas for Ukranian steel imports. But
Ukraine hasn't made any response or retreated until these views about the situation were written. Besides, it is not expected that
Ukraine will retreat with EU's desicion or retaliation, as Ukrainian exports to the EU is just over 5% of the country's total steel exports.
In line with the implementation of export tariff which is to be effective from new-year's day onwards, a decrease in
scrap exports from
Ukraine in short term is expected. Thus,
scrap prices ex-
Russia and
Europe will be influenced till the market is stabilized. Related to that, a strong
scrap demand, particularly from
Turkey is observed during December. This extraordinary demand, which in our
opinion is probably derived from the intention of raising the low levels of stocks and trying to reduce the impact of the price increases, caused particularly ex-Black Sea and
Europe scarp prices to show a serious upward tendency starting from mid December.
Because of
scrap collection and delivery problems due to seasonal conditions Black Sea
scrap supply will be low and aforesaid export tariff will be another difficulty which exporters and buyers/steel producers have to cope with during winter season. However, again during winter, the situation will compensate the falling demand by reason of high stock levels and the slowing market conditions. So this explains the reason why a serious downward tendency is not expected.
Furthermore, the upward trend in
freight rates for the last couple of months had a significant negative effect on Turkish steel producers'
scrap purchase costs. As well as the winter conditions, the increase in the amount of grain cargoes ex-Black Sea caused almost 50%
freight rate increase as from September when compared to summer months. As a result,
scrap prices ex-Black Sea has passed the $130/mt CFR Turkish port delivery basis level during the last weeks of December, and
scrap offers ex-
Europe and US also followed the price increases due to the general upward tendency. Consequently shredded
scrap prices have reached to $136/mt and HMS to $127-128/mt levels and even passed. Therefore producers had to face more trouble.
On the other hand, even there was a slight activity in
billet sales to
Taiwan the
semis market prices didn't meet the producers' expectations considering the increasing raw material costs. On the contrary, demand from the Gulf countries and Saudi Arabia in the last months satisfied both the producers and the exporters.
Eventhough the
construction industry slowed down due to winter season, there are still acceptable prices in
wire rod and
rebar markets. Particularly
wire rod producers were able to make exports or conclude their domestic sales from $260-265/mt price levels during December where
rebar prices couldn't show a sign of significant increase.
The positive effects of the activity seen in Chinese market since the last days of summer still continue in the flat products market. As the quota system applied in this country provides an advantageous environment for Turkish exports, flat product exports has started after long years of silence from
Turkey to
China. Particularly the export orders for cold rolled steel coils have created an almost perfect opportunity for
Erdemir and Borcelik.
Thus
Erdemir, planing to allocate a limited amount for exports for the first quarter of 2003 due to the strong domestic demand, has succeeded to conclude very good sales as they brought the cold rolled steel coil prices over $400/mt FOB Eregli levels.
Another factor why international flat markets are expected to be strong is that; again some producers based in
China will have to face
slab shortage due to several reasons like producers taking their facilities through periodic maintenance process or starting new operations, rolling mills etc. Because of such shortage,
slab prices will follow an upward trend together with Chinese producers creating a strong demand in the international markets and the upward trend will support the price increases.
Taking into consideration all above, we expect flat rolled markets will follow a strong and firm trend through the first half of year 2003.