Turkish rebar producers' outlook was negative at the 89th International Rebar Exporters and Producers Association (IREPAS) meeting held in Istanbul this week, as they expect US and EU trade barriers, coupled with lower-cost production in other countries, will continue to limit export volumes.
In the domestic market, a period of high inflation and high interest rates will weigh on trade.
Turkey caught between trade barriers and competition
Turkish long steel producers are entering a "period of stability", during which a handful of remaining export markets and ongoing domestic sales will be the focus for an industry operating at a significantly reduced capacity, producer Colakoglu's chief executive, Ugur Dalbeler, said at the event.
US and EU governments are "rewriting the rules [of global trade] ... after benefitting from globalisation for years", Dalbeler said. Turkish exporters find themselves caught between trade barriers in major buying regions and strong competition from other supplier regions, he added.
Turkish sales to the US have been weighed on by section 232 tariffs of about 25pc as well as anti-dumping duties levied on several Turkish mills individually. Sales to the EU have been limited by the bloc's steel safeguard quotas, while Turkish producers this week expressed concern at government support provided to European mills, such as Tata Steel UK's recent £500mn ($620mn) deal with the UK government linked to the future construction of a 3mn t/yr electric arc furnace (EAF).
Representatives of Turkish steel mills were also critical of European buyers' requirement that imported finished steel products not be made using Russian semi-finished steel, given that the purchase of Russian semis is still legal in the EU until October 2024, while Turkish rebar producers customarily rely on Russian material as a feedstock. The importation of third-country finished steel made with Russian substrate is still legal in the EU, until the respective import quotas on slab and billet expire.
Lower-cost competition has arguably done greater harm to Turkish exports than trade barriers. Turkish mills rely on energy generated with imported gas and coal, and their energy costs are higher than for steel producers in oil- and gas-rich countries in northern Africa and the GCC region. Most producers in these countries use direct reduced iron as their primary feedstock rather than scrap. With EU scrap consumption likely to increase significantly as the bloc makes a transition to EAF-based steelmaking, Turkish production costs are likely to remain high, pushing longs prices above other Mena region suppliers for the foreseeable future. Turkish scrap-to-rebar conversion costs are indicated to be about $190-210/t depending on the producer. The Argus daily HMS 1/2 80:20 cfr Turkey assessment has only dipped below $350/t for one day in 2023 so far, keeping Turkish mills' workable export levels for rebar mostly well above $550/t fob, while Algerian and Egyptian mills have been selling around and below that level in recent months, displacing Turkish shipments.
Stagflation will mute domestic construction
In the Turkish domestic market, projected inflation rates of 60pc in 2023 and 40pc in 2024 will put pressure on the construction sector, as will a sequence of interest rate hikes, with the Central Bank expected to increase rates to about 40pc by the end of this year.
Inflation is expected to only be brought under control in the first half of 2025, with lower-cost credit likely to be made available late in 2025, Sabanci University professor of finance Dr Ozgur Demirtas said at the conference. The US Federal Reserve is also expected to increase monetary supply before the November 2024 US presidential election.
The local rebar market in the Iskenderun region is finding a small amount of support from reconstruction projects in areas damaged by February's earthquakes, but so far the government has only assigned projects to state-owned construction firm Toki and activity has been limited. This is largely out of caution, given that the area is still experiencing aftershocks. As recently as 11 August, there was an aftershock of magnitude 5.3. The government could assign more projects in the lead-up to the local elections in March 2024, and is expected to authorise municipal authorities to award construction tenders after. Market participants expect that the Erdogan administration will look to gain more seats in the region.
But even once reconstruction activity picks up, overall demand is likely to remain muted given monetary pressures.
