Along with higher production costs, challenging finished steel sales and consequent production reductions, Turkish steel producers have to deal with certain feedstock import issues and may have to face more of these in the medium-term.
The panelists at the Middle East Iron and Steel conference held recently in Dubai discussed concerns regarding the sustainability of raw material and semis inflow in Turkey. In terms of scrap imports, it is known that the regular scrap suppliers to Turkey have increased their presence in the higher-paying Asian markets. This has not yet resulted in a noticeable supply shrinkage to Turkey, also due to the fact that Turkey is now working at a reduced capacity utilization rate, but it has also reduced Turkey’s power over scrap prices in negotiations.
Another threat in the scrap segment are the potential restriction of exports from the EU. “EUROFER has a strong lobby and intends to limit exports not to Turkey only, but globally, in order to keep scrap inside the EU,” a representative of Turkish steel producer Bastug said. “Around 75 percent of import scrap Turkey receives from the EU and mainly from the Benelux region. The EU authorities are pushing mills to switch from the EAF route to the BF route, which will increase their scrap consumption. It is a big risk for Turkey, which is increasing its melting capacity and there is no plan [for how to cope],” one of the panelists said. At the same time, European market sources have estimated the process of rerouting production in Europe or its regions to EAF-based production will most probably take years, though they admitted it may be a game changer.
During the panel discussion, it was also noted that the share of locally collected scrap in Turkey has been gradually increasing and that some scrap tonnages may be substituted by a larger share of DRI/HBI and pig iron in the mix.
As for the semi-finished imports, which Turkey normally uses to balance out its costs, it was said that Turkey’s total imports will show a decline in 2022, given the missing Ukrainian volumes and the increasing toxicity of Russia as a supplier due to international sanctions. The panelists agreed that in 2022 billet imports from Russia will total around 1.3 million mt from 1.45 million mt seen in 2021. Moreover, it was stated that the purchases from Russia peaked after the war against Ukraine just started, as importers were trying to take advantage of the low prices. However, later, this activity declined since some buyers did not want to bear increasing risks, while there is a tendency to track the origin of semis and this may strengthen.
In addition, along with the cheap billet sales to Turkey, Russia started trading its finished steel to the traditional markets of Turkish mills, undermining their positions and putting pressure on their prices. In addition, as stated by M Steel’s representative, a steep increase in semis imports to Turkey is doubtful in the medium-term unless Turkish exports improve. “There is a big import tax on semis [24 percent] unless it is processed and sold abroad as finished steel. Exports are falling sharply and therefore imports [within the licenses] will be difficult,” the trader said.
It is worth mentioning that to a significant extent the missing ex-Ukraine billet volumes and reduced purchases from Russia have been substituted by imports from more distant destinations - Malaysia, Indonesia and Kuwait. In recent weeks, specifically ex-Algeria billet has been in demand in Turkey as the country has increased its export allocations while being the only “clean” source of billet in the region and providing the material with acceptable lead times.
In the slab segment, the situation is somewhat different, given the traditionally limited number of suppliers. Imports from Russia continue, although with a usual discount of up to $80-100/mt and without a visible increase in the sales volumes in the first 10 months of the year. The other options are mainly Asia, but their offers quite often do not match Turkey’s HRC prices and margin targets, while the lead time is obviously a long one. Some volumes, however, were booked from Vietnam, South Korea and even Saudi Arabia, especially by those Turkish buyers who have to restock in slabs, but chose not to touch Russian origin material.