MMK: Restart of HRC line in Turkey expected to result in additional supplies of two million mt

Friday, 04 June 2021 15:49:21 (GMT+3)   |   Istanbul

SteelOrbis talked to Andrey Eremin, MMK’s Director for Economics, about the restart of the EAF and the HRC line at the Turkish unit.

You recently announced the relaunch of electric arc furnace and a hot rolling line at MMK Metalurji in Turkey. According to MMK representatives, it should take place around September 2021. Could you tell us more about why the decision to resume hot rolled steel production at the Turkish site has been made now?

The fact is that MMK Group now has serious potential to increase steel and hot rolled products output specifically by restarting production at MMK Metalurji's facilities in Turkey, which were previously halted due to economic inexpediency in 2012. Back then, the spread between hot rolled steel and scrap metal was less than $180/mt which meant the operation of the hot rolling mill was economically inefficient. Now the situation has changed significantly, and we see generally favourable conditions for resuming production in 2021.

As you understand, the decision to restart steel production at our Turkish asset was taken because MMK Group sees an opportunity to gain additional margins through increasing production of hot rolled products at MMK Metalurji. For several months now, we have been seeing a significant spread between the price of scrap metal and hot rolled coils, which allows for a positive effect on EBITDA through the production of steel in electric arc furnaces. Today, this effect is more than $300/mt, and we said earlier that we were ready to resume hot rolled steel production at MMK's site in Turkey at an effect of more than $50/mt.

The resumption of production was made possible by the recovery of the Turkish economy after the economic crisis, as well as by the successful adaptation of both the Turkish and global economies to the coronavirus pandemic conditions. Due to these factors, we are now seeing strong demand for hot rolled steel both in Turkey itself and in export markets.

How will the launch of hot rolled production in Turkey affect MMK Group as a whole? What benefits do you see for the company?

The launch of hot rolled coil production at the Turkish asset will allow us to produce about two million additional tonnes of rolled steel at MMK Group and, accordingly, increase the company's EBITDA, which, certainly, is a good opportunity for us.

The hot rolling production site in Turkey has been idle for several years at this point - could you tell us what preparatory work is needed for a successful relaunch? Are there any modernization works planned?

To restart the capacities, we need to carry out a number of technical activities aimed at restoring the equipment, replacing some components that have lost their technical characteristics during the shutdown - in both the main and auxiliary equipment. This applies mainly to equipment components which work under pressure. According to our specialists’ estimates, the investments necessary for the start-up could amount to about $40 million. Besides, we estimate that the required working capital investment will be around $200 million at current prices for raw materials and finished goods.

After the launch of hot rolled production in September, do you plan to sell the hot rolled steel to the market, or will you use it only as feedstock for MMK Metalurji's cold rolled production? In the first case, what approximate percentage of the total production do you plan to send to the market?

As I have said, we expect that the restart will give us an additional two million tonnes of hot rolled coils. Of this volume, we plan to use up to 900,000 tonnes for further processing, and the remaining coils - that is 1.1 million tonnes - will be sent for sale, both in Turkey and in foreign markets.

We are currently seeing a shortage of hot rolled products in the global market and, accordingly, high demand for them. In your opinion, how will the situation in terms of supply and demand for this type of product develop in the near future? When, in your opinion, will the balance between supply and demand in the hot rolled steel market be restored?

It is now clear that increased demand has been driven by the effects of deferred demand from 2020, as well as by the money supply that has accumulated in many economies where governments implemented measures to support their economies during pandemic lockdowns. Investment in infrastructure by many governments has also played an important role. In particular, China’s investment has had the most significant effect on the global markets. It is still difficult to predict how long we will feel the effects of these decisions. In addition, it is important that in April US President Joe Biden unveiled a plan for the country's infrastructure development that calls for more than $2 trillion in investments. If this plan is adopted, such investments will also influence global steel demand - additional demand in the US will be met not only by increased production at home, but also by imports.

At the end of April, the Chinese authorities announced the removal of the export duty rebate for hot rolled steel starting from May 2021. In your opinion, how will this measure affect the global hot rolled steel market?

Recently, we have seen the Chinese government trying to protect the country's economy from a surge in metal prices amid strong demand within China, which has resulted in China even importing rolled steel and significantly reducing exports. This has a positive impact on the global steel industry.

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