MMK: High expectations for Turkish market in 2016

Wednesday, 16 December 2015 17:38:24 (GMT+3)   |   Istanbul

Mr. Lapin, could you briefly describe your position at MMK?

As business development and performance management director, my position in other words is that of a chief strategy officer and includes responsibility for investment programs focused on strategy development for the company's growth, strategic marketing responsibility, and potential markets.

In light of recent developments in Turkey's flat steel market, how do you view MMK's operations in Turkey?

The MMK facilities in Turkey such as the hot dip galvanized lines and polymer coating lines have been performing excellently at high capacity utilization levels, while our assets in Turkey have also been doing well in financial terms. The electric arc furnace facility, on the other hand, is idle for now because of the situation regarding scrap and hot rolled coil pricing. In general, even if the steel markets are not satisfactory on a global basis, MMK is happy with the results in Turkey in 2015.

What can we expect from MMK in 2016 in the Turkish market?

First, the 2015 numbers for production volumes and earnings are solid. It can be said that the turbulence in the steel markets in Turkey has come to an end and that the general outlook and recovery in Turkey, for steel consumption sectors in particular, seem positive in 2016.
There has been a lot of discussion in the overall global market regarding the Chinese effect due to the overcapacity and export market activities of the country. How do you see China's position in the steel market globally?

Due to the decrease in steel consumption in China, there have been small shutdowns of production. In this context, Chinese steel producers have been switching their excess volumes to the export markets. This has created pressure on global steel prices and the situation in the hot rolled trade does not appear advantageous for the moment.

While the geographic position of MMK in the middle of a large landmass would seem to create a disadvantage for us in relation to exports, in fact it provides us with good domestic markets because it is really difficult for others to come into the Russian markets. As a result, it may be said that the Chinese effect has had a relatively limited impact on us.

Going forward, considering China as a competitor of MMK and Severstal, competition has increased and so we are looking to improve customer satisfaction. We are working on delivery terms and quality and all these strategies have been making MMK a better partner for our customers.

The main question regarding China comes down to a simple statement: the government of China should stop helping steel companies. Chinese steel companies are not only seeing reduced profits, they are incurring cash losses. Once protective measures in China cease to exist, the situation in the global steel industry will improve.
How do you evaluate local steel demand in Russia?

Steel consumption in Russia this year seems to have decreased by over 10 percent, which is a lot. Recovery is expected in five to ten years, and when I say recovery I mean returning to the numbers of 2013-2014. So the Russian steel market has shrunk. GDP in Russia is expected to decrease by up to 1.6 percent next year and certainly the steel consuming sectors will also be affected by this. Given all the obstacles, MMK foresees 2016 to be a challenging year.

In your presentation, you underlined that Turkey and the Middle East will continue to be important markets for MMK. Could you elaborate on this?

For MMK, there are two main types of export markets: a substantial percentage of our exports goes to CIS countries; the remainder goes to other markets, i.e., the Middle East, Turkey included. Regarding CIS exports, because of the geographical situation and because transportation is easy to these countries, we can consider these markets as domestic markets and we export to CIS countries whatever happens. Considering other export markets like Turkey and the Middle East, these are our key export markets. As for North America or Southeast Asia, they are not our primary export markets because of the pricing levels or costs of transportation. Once the tense political situation in the Middle East, I refer to the civil war in Syria, returns to normal, this will be good news for MMK in particular, while also in Iran tensions are diminishing and the removal of sanctions against Iran will be good news for MMK as well.

What does MMK think about the increase in protective measures in global steel trade?

It is very simple. Our strategy is to be a domestic producer and not to be vulnerable to any kind of limitation. Those measures in the US or other countries targeting Chinese exports affect us indirectly, but if there are sanctions only against Chinese steel exports such as antidumping measures, this will make other markets healthier. Regulations come and go; they come this year, they go next year. Trade regulations or export sanctions are not here forever. However, the situation regarding scrap is different. EAF capacity in Russia will increase the demand for scrap in the coming years, and so it may be said that scrap supply from Russia will likely decline, while scrap consumers in Turkey will have to cope with this low level of scrap availability from Ukraine and Russia in the next five years most probably.

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