After a long time spent surviving the effects of the financial crisis, the Turkish domestic flat steel market has this finally seen prices move on an increase trend. The positive atmosphere in the economy and the general confidence in the markets in the country may be indicated as influential in the uptrend in question. The comment made by the International Monetary Fund (IMF) on Thursday, June 18, to the effect that Turkey is showing signals of recovery has also supported the positive mood in the country. In fact, this recovery has gradually come to be felt over the past month. Some examples of the signs of recovery are as follows: material purchase activity has started with the rise in market confidence, the government's stimulus measures have started to show their effects in the domestic market and certain supply shortages have been seen against a backdrop of low stock levels. It is really hard to find abundant flat steel materials in the Turkish domestic market nowadays. Producers cannot give delivery/shipment dates before September. In the same way, steel service centers are nowadays also not in a position to respond fully to their customers' needs for product diversity even after they (i.e. the service centers) have started to buy in materials.
As we mentioned in previous analyses, market players in Turkey consider that the supply-and-demand balance will be the most important element in determining the price levels in the steel sector in the coming period in Turkey, and also globally. Nowadays, prices are increasing since the growth rate of demand is higher than that of supply. However, if all producers were working at full capacity, today no supply shortages or price increases would be observed. Since producers had previously reduced their production levels (in order to ensure their survival) due to the financial crisis, they now need more time in order to respond to demand.
In the needed time period in question, the most important question is what percentage of the producers to increase supply. If the producers suddenly increase production levels thinking that the markets are now all open, the current rising price trends in the markets may not be sustained and may decline instead. Because, real demand in the global markets will unlikely see a full recovery before 2010. Production costs are another factor influencing the current price uptrend. With the current iron ore and scrap prices, many producers may register losses if the price level of 2 mm HRC drops below $500/mt ex-works.
In the upcoming period, during the holidays in particular, if the producers are not sufficiently careful when they plan their production increases, the balance of supply and demand may be upset and prices may start to move down. A similar movement has been observed in oil prices. A balance in oil price levels has been reached at $70/mt on the back of supply tightness and this price level has held for two or three weeks so far. If the oil producers had been careless, oil prices would not have reached such equilibrium.
Summing up, the precise alignment of the supply-and-demand balance in the coming period will be the most important factor determining the profit/loss tables of steel firms, future price levels and the revival of the flat steel sector. Like oil or iron ore producers, if steel producers monitor each other closely and ensure the supply-and demand balance is more or less maintained, then not only will prices retain their positive trends in the markets but the risk factor in the markets will be reduced as well. Otherwise, the steel trade may come to resemble the stock markets, entailing knife-edge high levels of risk.