SteelOrbis talked to Banu Küner, Galva Metal Process Improvement and Purchasing Manager, on galvanized steel sector and protectionism for the special report section for the Prime magazine.
What are your standard products and targeted sectors?
We operate almost in all product groups in the flat steel market, mainly in the HDG and PPGI segments. Our cold rolled, pickled hot rolled and hot rolled coil operations have significantly increased after the activation of our latest investments for a cold rolling line and a cut-length plate line for thicker products.
At our 15,000 m2 steel service center in Kartepe/Kocaeli, we provide slitting services betwe dimensions of 0.15 mm and 5.00 mm, cut-to-length between 0.20 mm and 6.00 mm, embossed plates and strips, and trapezoidal and corrugated plates up to 0.60 mm. Sales from our production have increased over the years. We also provide contracting services for slitting and cut-to-length for both end-users and producers.
Along with production, we sell coils in our domestic and export markets, and we also have a presence in the transit trade. We stock up 10,000 metric tons of material on average as we give significant care to the variety of our inventories. Beyond the standard grade Dx51, we stock S grades (S280, S320, S350) which are mainly used in prefab and rack productions, S and HX grades used in the automotive sector, Dx52-Dx53-Dx54 grades, galvanized products used in the sectors which need higher corrosion-resistance including solar systems and silo production, C surface products for sectors procuring smooth material, as well as various dimensions and various RAL-coded PPGI coils.
What makes your firm different?
This question should be answered considering both our vision and production abilities.
First of all, we believe happy employees result in happy customers. So we put emphasis on the value given to our co-workers, to working with colleagues who are young or feel young, who are dynamic, love their jobs and are open to learning continuously. Besides this, we focus on achieving top-level customer satisfaction. We are also open to technological developments; we are innovators and solution-oriented.
We are a steel service center exporting to more than 80 countries, and we were the only service center that received an award for exports along with leading domestic producers in 2018. We have employees who together cover a competence in nine languages. Our partnership structure also provides support for our position.
In terms of our production abilities, the keystone of our policy is to beat the odds and achieve what is difficult. We are in a strong position with our slitting lines, expert team and shipping staff.
How do you interpret the current demand from the sector you serve?
As everyone knows, a significant contraction has been experienced in the local market. Despite this development in our main sector and all other negative market conditions, we are still hitting our domestic sales targets as our activities in different sectors have increased as a result of our new investments which have led to a wider product range appealing to these sectors, and also due to the higher preference we attract in the construction business. The strong financial structure of our company and problem-free feedstock purchases have been important factors contributing to our higher market shares in such a period of weak demand and harder economic conditions.
Meanwhile, as regards the export side, the EU’s quota system on steel imports has not impacted HDG products but has been very restrictive for our PPGI sales. Yet, we are planning to make far-sighted HRC purchases focusing on our regular customer base, shipping orders quickly and exploiting the EU quotas to an elevated degree.
On the other hand, the US decision to double the 25 percent Section 232 duty to 50 percent as of August 2018 caused shipments to the US to stop. Although the additional 25 percent duty was canceled in May 2019, the initial duty remains. The lower levels of domestic steel prices in the US and the higher capacity utilization rates of US mills both prevent exports to the country, but we believe new opportunities may be seen and so we are monitoring this market closely.
On the other hand, our activities focusing on new markets and new customers continue with our marketing and research operations, our customer visits, and by attending fairs, resulting in successful additions to our customer base.
What is your expectation for HDG and PPGI prices in the coming period?
Recently, prices of both iron ore and scrap have been moving downwards and it is foreseen that this downtrend will continue for a while. According to our estimation, HRC prices will decrease to slightly below $500/mt and prices of HDG and PPGI will follow suit. Meanwhile, there are other factors which may impact flat steel prices, such as micro and macro-economic indicators, currency fluctuations and changes in interest rates. Although the declines in borrowing costs as a result of the interest rate cuts and the strengthening of the national currency against other currencies are positively impacting the market outlook, there are concerns about the sustainability of this situation since there is always the possibility that the US dollar may strengthen depending on developments in the world such as the Federal Reserve Bank keeping interest rates lower than expected, news from Argentina, the trade war between the US and China, and so on. Amid positive economic indicators, demand for flat steel may increase and, in such a case, HRC producers may increase their prices even if their input costs decrease. Meanwhile, the expectation that import quotas for PPGI in the EU may be exhausted before we enter the month of October may put producers and exporters in a difficult situation and may cause demand to weaken. As such, the possibility of a downward movement of prices may increase.
What are the main problems in need of resolution facing the Turkish galvanized steel sector?
The major handicaps of the Turkish HDG sector are the cuts in HRC production and iron ore being used by only one domestic steel producer. The production cuts being imposed under the European Coal and Steel Community agreement are preventing our steel industry from showing its potential.
Another important issue is the rapid increase in HDG production in Turkey, though most of the output is of basic products, while high-strength galvanized products, with Z600 and above galvanized coating and with thickness of 4 mm and above are not being produced. Also, as for color coated products, production is mostly based on basic materials and most of the production lines are not adequate for production of high galvanized or special laminated products.
Also, European producers have the opportunity to export their A-2, A-3 and A-4 products to Turkey without being subjected to any duty. These products are being sold in the Turkish market at a price level equal to that for A-1 grade products. Our expectation is for Turkish producers to be more persistent in bringing this unfair trade to an end.
How do you view the competition in the international HDG and PPGI markets against the backdrop of widespread safeguard measures?
Naturally, the protectionist measures in question have accelerated the competition in the global market. Despite their lower quality as compared to Turkish material, Indian coils have increased their market share in Europe owing to their cheap prices and higher quotas as compared to Turkish mills.
Surely, the best advantage of Turkey is its proximity to Europe. However, although we are capable of delivering materials within a shorter time as compared to our competitors, the low level of the quota is a big problem. On the other hand, the situation in the European automotive market is still unclear and steel demand in the region is still slack. Despite the weakening of demand, European steel producers have been unwilling to decrease their prices and have tried to overcome the situation by cutting their production. However, lately, prices of HRC in the European domestic market have decreased to €485/mt. European buyers mostly prefer to meet their needs from the domestic market in order to avoid the risk of exceeding the quotas. Prices of HRC, which were above $900/mt last year, are now under $600/mt. Having started production at two new blast furnaces in 2018, US Steel Corporation has reduced the capacity utilization rates of these furnaces this year. Although European producers are trying to increase their production, buyers are cautious about making purchases as they think that prices may decrease further. As a result, European producers’ inventories are at high levels.
How was the first half of 2019 for Galva? What are your expectations for the rest of the year?
We succeeded in reaching our sales target in the first quarter of this year, while in the second quarter our sales were slightly under our goal due to the weakening of demand in the domestic market and the protectionist measures in the global market. However, in the second half, our domestic market sales have increased significantly, as our new production lines were put into use and we gained new high-potential customers for the products we are making on these lines. Also, with the start of the new quota period in the EU, we restarted our coated steel production and our sales volume so far has exceeded our target. We think that this success will continue and we will achieve our goal to exceed last year’s levels in terms of sales and production.