How is the first half of 2026 shaping up for the flat steel market?
The first half of 2026 has been a period that fell short of expectations for the flat steel market. At the beginning of the year, there were signs of recovery in Europe and forecasts of some activity in export markets. However, at this point, we see that demand remains quite weak in both domestic and international markets. We assess that developments such as the continued slowdown in consumption, the rapid increase in protectionist measures, and the implementation of the Carbon Border Adjustment Mechanism (CBAM) are creating significant pressure on exports. In the domestic market, the overall outlook remains stagnant due to high financing costs and low consumer demand. In this context, we can describe the first half of 2026 as a particularly challenging period for the sector, marked by increased competition and results falling short of expectations.
What is the state of demand in the domestic market? How do you assess end-user sectors, particularly the automotive and white goods industries?
Demand in the domestic market remains quite weak. A noticeable slowdown is evident in the automotive sector and, particularly, the home appliance sector - both of which are among the most significant sectors for flat steel consumption. While production in the automotive sector declined by four percent in the first four months of the year, the contraction in the home appliance sector reached approximately 14 percent during the same period. We can say that both sectors have weakened due to competitive pressure from China, both in the domestic market and in their primary export markets.
The decline in production pace in these two sectors - which are among our largest customer segments - is directly reflected in the demand for flat steel. In particular, the slowdown in final consumption and difficulties in accessing financing are causing manufacturers to act more cautiously. Under normal conditions, a more vibrant market would be expected in the second quarter of the year, but in the current landscape, demand is significantly below expectations.
At the same time, we observe that customers are acting quite cautiously in terms of inventory management. Companies tend to operate with minimal inventory due to high costs and an environment of uncertainty. This situation also stands out as one of the key factors limiting market activity.
On the other hand, in the automotive sector, we see that only 33 percent of the 369,000 cars and light commercial vehicles sold in the first four months of the year were domestically produced vehicles. Although there has been a limited increase compared to last year, it is worth noting that this ratio was approximately 45 percent in 2020. We believe that reaching these levels again is essential. Increasing sales of domestically produced vehicles will have a positive impact on the entire automotive ecosystem. This could lead to renewed market activity.
How have fluctuations in input costs and energy prices impacted flat steel prices? How do you interpret the current price trends?
We have recently observed an increase in energy costs in particular. Due to geopolitical developments in the Middle East and uncertainties in energy markets, energy prices have been on an upward trend since April. Additionally, there have been increases in raw material and logistics costs.
However, Borçelik believes the biggest challenge for the sector is the inability to pass on these rising costs to finished product prices in the same proportion. Raising prices has become particularly difficult due to weak demand for cold-rolled and galvanized products. Consequently, producers are operating under significant cost pressure.
On one hand, there are rising energy and production costs; on the other, sales prices are being suppressed due to weak demand. This situation is significantly squeezing margins across the industry. In short, manufacturers are caught between rising costs and market realities.
The EU is preparing to significantly reduce quotas and raise the quota excess duty to 50 percent as of July 2026. How will this affect exports?
Protectionist measures on the European Union side have now reached their final stage. Recently, a regulation reducing the total quota by approximately 47 percent to 18.3 million tons was approved. The European Union is the largest and most strategic export market for Turkey’s flat steel sector. Such a significant reduction in quota amounts effectively means a severe narrowing of our operational space in the European market.
To maintain our current import share, a quota allocation of at least 2.8 million tons is required. If a quota at this level is secured, we can maintain our approximately 15 percent share of EU imports. Furthermore, considering our Customs Union, we believe we deserve a quota allocation exceeding this amount. Additionally, the 50% tariff to be applied in case of quota overrun is economically unsustainable. Selling above the quota at such a tariff rate does not seem feasible. Therefore, we expect a significant decline in exports to the EU in the coming period.
However, the risk is not limited to export losses. There is also a possibility that Chinese, South Korean, and other Asian producers, facing increased difficulties in accessing the European market, may turn to Turkey as an alternative market. In this scenario, supply pressure in the domestic market could increase, and additional downward pressure on prices could emerge. Consequently, we believe that these decisions will seriously affect not only exports but also the competitive balance in Turkey’s domestic market.
How significant will the financial obligations arising from the CBAM by 2026 be for flat steel exporters? What is the Turkish steel sector’s preparedness in this regard?
The CBAM will be one of the most critical issues for the flat steel sector in the coming period. With the introduction of financial obligations as of 2026, carbon costs are becoming much more critical, particularly for producers exporting to Europe. As Borçelik, we observe that importers in Europe are also acting with considerable caution due to this process. This is because there are still many unresolved issues in the legislation. The ongoing uncertainty regarding calculation methods and implementation details is putting both producers and buyers in a difficult position.
The Turkish steel sector is making significant preparations in this regard. Serious efforts are underway to reduce carbon emissions, invest in energy efficiency, and adopt sustainable production technologies. Additionally, the fact that the national emissions trading system is set to come into effect by the end of the year is a significant development. We believe Turkey must align its progress with the EU ETS system during this process.
However, in an environment where regulations are not yet fully clarified, it is not enough for producers alone to be prepared. Customers in Europe also want to see how the system will operate. Therefore, reducing uncertainties in the coming period is of critical importance for the sector.
How are economic conditions affecting your business?
The current economic and inflationary environment is creating multifaceted pressure on the sector. In particular, high financing costs are significantly affecting both investment appetite and final consumption. Slowing domestic consumption is leading customers to operate with lower inventory levels and postpone orders. Additionally, the current exchange rate policy, energy costs, and fluctuations in raw material prices are complicating production planning. The decline in predictability is fostering a more cautious approach on both the producer and customer sides. From the perspective of the sector’s sustainability, one of the most pressing needs right now is the establishment of more predictable conditions. This is because, in the current environment, we are navigating a particularly challenging period in both the domestic market and the export sector.
How has the war in the Middle East altered steel trade? What can you say about logistics issues and freight rates?
One of the most significant impacts of the war in the Middle East on global steel trade has been the rise in logistics and energy costs. In particular, with the increase in security risks in the region, freight rates have seen significant increases, and these high levels persist. Changes in certain maritime shipping routes, rising insurance costs, and extended delivery times are directly affecting trade flows.
For exporters in particular, logistics costs have become a much more significant factor. In addition, uncertainties regarding delivery times are influencing customers’ purchasing decisions. Consequently, the war’s impact is not limited to energy and freight costs; it is also causing a general slowdown and a more cautious approach in global trade flows.