A sectoral meeting held online by Turkey’s Foreign Steel Trade Association on June 18 discussed the expected quota changes in Europe as of July 1, supply fragility in the Middle East stemming from the Strait of Hormuz, opportunities that Ukraine’s reconstruction process may create for the Turkish steel sector, and the impact of geopolitical risks on freight costs.
Quota uncertainty in Europe pushes market players to wait
In his assessment of the European markets, Kutay Kenan Ülkü, trade manager at Tata International Limited, stated that the new period to begin as of July 1 in the European Union’s quota system for steel imports has pushed market players to wait due to uncertainties regarding product groups and country-based distribution. He said that, under current conditions, both producers and traders are struggling to take risks and that, particularly in hot rolled coil and plate, buyers remain cautious about new purchases due to stock levels and quota risks, despite the widening gap between domestic prices and import prices.
According to Ülkü, local prices in Europe are expected to move upward starting from the autumn months. Meanwhile, the fact that production capacity in Europe cannot be increased rapidly due to logistics, energy, infrastructure and the age of facilities may cause the continent to face supply shortages, especially in commercial-grade steel products.
Middle East and North Africa may gain weight in green steel investments
Evaluating the Middle East markets at the meeting, Ali Der, operations director at Universal Rolling WLL, stated that the Middle East, together with markets such as Yemen, Syria, Saudi Arabia, Qatar, Kuwait, the United Arab Emirates and Oman, remains an important steel export region for Turkey. He said that the tension in the Strait of Hormuz has clearly revealed how fragile the production chain in the region is. Der emphasized that Bahrain Steel holds a critical position in iron ore pellet supply for the region and that the disruption in Hormuz, by interrupting pellet flows, has caused many producers, particularly in Qatar, Saudi Arabia and Bahrain, to face difficulties in production planning. He therefore stressed that the “just in time” approach, which is based on timely supply, should now be replaced by a “just in case” approach, in which higher stocks of semi-finished products and raw materials are maintained. However, he also stated that, should geopolitical tensions in the Strait of Hormuz come to an end, prices are expected to see a downward correction of approximately 10%.
Der also said that the Middle East and North Africa may move into a stronger position in the coming period in terms of green steel and low-carbon production investments. In particular, he noted that the wave of investments in Oman, Saudi Arabia and North Africa, supported by natural gas, cheap energy and hydrogen-based DRI projects, could create both competitive pressure and joint investment opportunities for Turkish producers when combined with the advantage of proximity to Europe. Pointing out that Turkey has structural disadvantages in raw material and energy costs, Der said the period in which Turkish producers could export simply by offering prices is now over. From now on, companies that can offer alternative logistics routes, a secure supply model, regional partnerships and semi-finished product security will be more resilient in global steel trade.
Ukraine seen as an opportunity market for Turkish steel sector in the short term
Ali Sezen, chairman of the Ukrainian Turkish Business Association and a member of Turkey’s Foreign Economic Relations Board, stated that Ukraine, where many steel facilities have been damaged due to the war, does not pose a threat to the Turkish steel sector in the short term but, on the contrary, offers a strong export opportunity. He said that Ukraine’s reconstruction process will generate significant demand for rebar, galvanized coil, hot rolled coil, angles, profiles and other steel products. Sezen noted that, although Ukraine was an important steel producer before the war, under current conditions many major facilities have either been damaged or lost production capacity. He stated that Turkey may secure a significant share of the reconstruction process thanks in particular to its logistics proximity, flexible trade capabilities and existing commercial relations.
According to Sezen, as steel demand in Ukraine’s reconstruction may remain high for several years, Turkish exporters should approach the market not only from a spot sales perspective, but also by establishing local offices, warehouses, distribution networks and long-term customer relations. Sezen also touched on scrap exports from Venezuela, saying that the country has become one of the alternative sources for Turkish scrap imports. He stated that easing on the financing and banking side could support scrap flows from Venezuela and that increasing source diversity in Turkey’s scrap supply carries strategic importance.
Impact of geopolitical risks on freight market to continue
Evaluating freight markets, Oğuzhan Üçok, chairman of the board of Vodina A.Ş., said that the increases seen in the Baltic indices in the dry bulk market are mainly related not to fuel costs, but to risk management costs. He stated that a possible normalization in the Strait of Hormuz would not immediately be reflected in maritime transportation and that the effects on the logistics chain could continue to be felt for several more months due to issues such as insurance, mine clearance, the repositioning of vessels, the recovery of production and the re-establishment of trade flows. Üçok said that costs may remain high, particularly in container transportation, as long as risks stemming from the Red Sea and Yemen continue. On the dry bulk side, he said a strong recovery in freight rates does not appear easy in the short term due to weakening cargo availability.