Turkish stainless steel sector increasingly feels impact of current crisis

Thursday, 13 November 2008 16:57:27 (GMT+3)   |  
       

Turkey's initial resistance to the effects of the global financial crisis has started to register a weakening on several fronts. The strong structure of Turkey's financial sector at first helped to minimize its vulnerability in the current crisis. However, the crisis is not only finance-based. The crisis initially affected the finance sector and then the cash flow, before finally hitting the real sector. However, was it ever possible that Turkey, which is a substantial exporter country, would escape the effects of the real sector shrinkage seen across the world?

Of course, the answer is no. In the real sector in particular, a significant number of firms have gone bankrupt and many companies have been cutting back production and laying off staff. Unfortunately, however, the crisis has also impacted strongly on consumption levels. Currently, people are refraining from spending money due to the increasing interest rates and the prevailing mood of uncertainty. This has exacerbated the situation in the real sector which had already entered a state of crisis. In addition, the foreign banks that recently entered the market have announced losses and withdrawn their credits from many firms operating in Turkey. As a result, an almost unbearable situation has been reached.

Given all the factors mentioned above, demand levels are decreasing. In particular, luxury goods consumption is down by a big margin. Demand seen in sectors such as automotive and white goods has shown a drop of 40 percent. The downward trends seen in these sectors, which are at the heart of the stainless steel industry, slowed down stainless steel consumption and even caused an atmosphere of panic in the sector, with nickel prices falling down to the level of $8,000/mt. Yet, due to the purchases and interventions seen subsequently, nickel price levels gained stability in the range of $11,000-12,000/mt. Stainless steel producers have cut their capacity utilizations rates to 40-50 percent in order to prevent the situation from worsening. Turkey has been hit by these negative developments, with a shrinkage registered in the automotive, white goods, machine and other sectors, and with a decrease seen in stainless steel usage. Meanwhile, steel service centers have started to move more cautiously with regard to sales and have been holding back from selling material to just any prospective buyer. The leading steel service centers have said in interviews that there is a certain lack of confidence vis-a-vis customers, in the vein of "they have might have come to us just because they have not been able to buy anywhere else." In this context, the service centers tell customers that they can only work on a cash basis.

Difficulties in payment collection for materials previously sold constitute another problem, with the result that many firms are working on a cash payment basis, while cutting deferred payments. However, producers say that they are only willing to sell their materials for deferred payments to reliable firms that overcame the crisis seen in 2001. They added that firms unable to stand steady in time of crisis are likely to exit the market.

Furthermore, some producers have forecasted that no improvements are expected to be seen within the next six to nine months and that, compared to the current situation, the sector can expect to experience a constriction of 35-40 percent by the start of the New Year. It is thought that firms lacking financial power and in difficulties with the banks will be hit hard; whereas other firms will simply lower their production volumes. In short, the sector seems to be moving towards stability for a certain time in the coming period. Meanwhile, the prices of 304/2B grade stainless steel products of 2 mm thickness are standing at levels of €2,400-2,600/mt ($3,002-3,253/mt). These prices are for materials which were purchased previously, and so they stand at higher levels compared to prices seen in the foreign markets, where offers at levels of €1,900-2,100/mt ($2,377-2,628/mt) are seen. This gap can be seen as an indicator that stainless steel prices in Turkey are likely to show further softening.


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