In 2022, Turkey raised electricity prices by over three-fold and natural gas prices for industry by over five-fold. The Energy Market Regulatory Authority of Turkey (EPDK) linked the rise in electricity prices to the rise in energy prices, especially due to the impact of the war in Ukraine. The increased energy prices in 2022 rewrote all balances for the Turkish steel industry. In 2023, the local energy price rates began to decrease month by month, and by May 2023 they had returned to the levels of the middle of the previous year. This partly helped Turkish mills to keep their finished steel product margins at relatively normal levels, though the competitiveness of Turkish steel in the export markets still remains low.
Before the electricity and natural gas price increases in 2021, the share of energy costs in overall steel production costs in Turkey was 10-12 percent for BOF-based steel production and 6-8 percent for EAF-based steel production, SteelOrbis estimates. In 2022, the share of energy costs in the Turkish steel sector’s overall costs increased to 18-25 percent due to the hikes in natural gas and electricity prices. In the fourth quarter of 2022, the price of natural gas used for industrial usage increased by more than 50-60 percent to TRY 19,750 per 1,000 m3. Electricity tariffs were raised in tandem. According to the decision of the EPDK, electricity tariffs for industrial users rose by around 50 percent to TRY 4.4-4.8/kWh.
Turkish rebar (EAF steel) production cost structure, including delivery to port
In the autumn months of 2022, industry representatives had appealed to the Turkish government to take measures to combat high electricity costs and maintain the competitiveness of exporters. At the end of December, the energy market regular EPDK announced a 16 percent reduction in electricity prices for industrial consumers in 2023. It also lowered the maximum price for electricity in the free market from TRY 4.8/kWh to TRY 4.2/kWh.
In January 2023, the cost of electricity for Turkish industrial enterprises, which consume it at prices available in the free market, decreased by 7-12 percent, but this was not enough to significantly improve the situation regarding high production costs. In February, the global seasonal decrease in energy prices and the decrease in consumption in Turkey due to the earthquakes caused prices of natural gas used by Turkish industry to decrease by more than 30 percent to TRY 11,900 per 1,000 m3. New electricity tariffs were unveiled in tandem for industrial users, dropping by around 15-20 percent to TRY 2.8-3.2/kWh.
In March, prices of natural gas used by Turkish industry decreased by more than 19 percent to TRY 9,500 per 1,000 m3. The new electricity tariffs for industrial users dropped by around 20-25 percent to TRY 2.1-2.3/kWh. The energy tariff reductions caused a $20/mt fall in steel production costs in March, but this did not help Turkish mills much, as their scrap costs rose by almost $25/mt on average during March.
From April 1, the Turkish Oil Pipeline Corporation (BOTAŞ) reduced wholesale natural gas prices for large industrial enterprises by another 20 percent compared to the previous month. This was the third decrease in the cost of gas in the country for industrial consumers in 2023. The prices of electricity for all consumers were reduced by another 15 percent from April 1.
BOTAŞ in May 2023 left wholesale natural gas prices for large industrial enterprises unchanged compared to the previous month. At the same time, raw material prices in Turkey remained under pressure during May, which was a relatively slow month in terms of the finished steel trade since activity was at a standstill ahead of the elections.
Lower raw material and energy prices in Turkey allowed producers to decrease crude steel production costs by 7-13 percent in April and by 6-7 percent in May. During the month, BOF-based crude steel production costs decreased to $440-450/mt (excluding fixed costs) and EAF-based crude steel production costs decreased to $450-460/mt. This increased Turkish mills’ competitiveness and created space for a more flexible pricing policy. The share of energy costs in April and May in overall steel production costs in Turkey dropped to 10-13 percent for BOF-based steel production (from 15-19 percent in the second half of 2022) and to 9-12 percent for EAF-based steel production (from 13-23 percent in the second half of 2022), SteelOrbis estimates.
Turkish rebar (EAF-based steel) export margin, FOB basis
Turkish EAF-based rebar production costs declined by $35/mt to the level of $610-620/mt on FOB basis in May. Due to the significant price drop during the month, average rebar prices on FOB basis in May dropped by $45/mt to $640-650/mt, and the margin of Turkish EAF-based rebar producers decreased to $30/mt on FOB basis, according to SteelOrbis’ data.
Turkish HRC production cost structure, including delivery to port
Production costs for HRC made from BOF-origin steel in Turkey during the April-May period decreased by $120/mt to $620/mt ex-works due to lower energy and raw material prices. EAF-origin HRC production costs declined to $615/mt in the given period.
According to SteelOrbis’ data, long and flat steel product exports from Turkey in 2022 decreased by 20 percent to 15 million metric tons, the lowest level in the last five years. Export volumes decreased significantly due to reduced competitiveness against the backdrop of the imbalances caused by the increase in the cost of energy resources. At the same time, steel imports into the country remained at high levels. The Turkish steel industry’s capacity utilization rate fell from 75 percent to less than 60 percent as producers reduced the number of shifts or shut down operations.
In 2023, despite the significant reduction in energy costs, the situation in the export markets for Turkish mills did not improve significantly. The global markets are weak and Turkish exports are limited to only a few markets. Even in the Turkish domestic market, steel product imports have increased significantly, which was not the case before. According to the SteelOrbis data, in the first quarter of 2023 the volume of steel products imports arriving in Turkey increased by 22 percent quarter on quarter and by nine percent year on year to 4.2 million mt. At the same time, the volume of steel products exports from Turkey dropped by 21 percent quarter on quarter and by 49 percent year on year to 2.2 million mt.
As regards exports, competition with North Africa and Asia will remain relevant in the medium term. In the domestic market, hopes exist for some start to be made on the reconstruction projects announced and anticipated for the earthquake-hit Iskenderun region. Still, the whole process is not yet clear and will to a large extent depend on the result of the elections and the economic and financial steps taken by the government in the medium term. According to Turkish producers, construction will begin no earlier than the end of summer.
The decline in energy prices and in steel production costs in April and May did not help Turkish producers much, as finished steel prices decreased more than energy costs and overall costs in general. Along with the prevailing economic uncertainties, Turkish mills’ finished and semi-finished steel sales are on the low side, with the lack of exports in particular starting to take its toll on the market. Turkish mills need to make another downward price revision to become competitive again in the international steel markets. The decline in energy prices and in steel production costs in general allows Turkish steel producers to adopt a more flexible pricing policy, though their options still remain limited.