The volume of rebar required for post-earthquake reconstruction activities in Turkey remains largely unknown, but speculation and initial government estimates have ignited a rapid strengthening in global ferrous scrap markets.
Three weeks since the Iskenderun region was struck by devastating earthquakes, clean-up and surveying of the damaged areas remains underway. Despite these ongoing efforts and numerous aftershocks, Turkish steelmakers in the affected region and elsewhere have swiftly returned to the deep-sea ferrous scrap market with robust steel sales volumes driving scrap demand and pricing to the highest since May 2022.
At the root of the rally has been an uptick in domestic rebar demand, driven in part by bullish short-term outlooks on rebuild-related steel requirements and restocking in the coming year, which could be accelerated in light of the upcoming presidential election in June.
Most market participants expect the net result to provide longer-term stability to Turkey's baseline monthly scrap import volumes as opposed to a short-term flash of demand based on timelines for reconstruction that factor in demolition, city planning, and rebuilding to take pace over the next 12-24 months.
Backing out scrap demand
The Turkish government told steelmakers earlier this month that an estimated 4mn metric tonnes (t) of rebar would be required for the rebuild work over the next 3-4 months, a timeline most have viewed as unrealistic.
Assuming standard melt loss between rebar/scrap, market sources estimated that if all rebar in the government's estimate was produced domestically, it would require around 4.5mn t of scrap, or roughly a fifth of the country's import volumes last year.
In 2022, Turkey imported 20.6mn t of scrap, or an average of 1.7mn t/month, of which about 15pc was sourced from the short-sea market.
The additional volume of scrap required based on the government's initial estimate would be 1.13mn t over four months, or roughly 37 additional bulk vessels based on typical cargo sizes, if the government's timeline was adhered to and no changes were made to import/export policies for steel products.
This would be on top of the average 45 cargoes per month that Turkey imported throughout 2022, based on market participants' estimates.
It is virtually impossible for this much additional seaborne scrap to be directed toward Turkey in such a short period of time.
Flows in exporting regions have been constrained in recent months and even if scrap were miraculously abundant worldwide, few exporters would have the capability to ramp up collection rates and processing capacity to achieve such an increase in outbound shipments.
Exporters would also have to start drawing off cargoes from dependable alternative overseas markets like Egypt or significantly cut sales to their domestic buyers, neither of which is likely to occur.
One sell-side source said it expects a more realistic timeline is for the core reconstruction period to take place over two years, adding 200,000-300,000t of domestic rebar demand each month. This extra rebar production could be met by Turkish mills and would require a more modest 5-6 additional deep-sea cargoes per month combined with small increases in short-sea and domestic scrap intake.
Skepticism and unknowns
Although most market participants remain largely skeptical of the figures initially targeted by the Turkish government, the commitment to a rapid reconstruction has still fueled an upturn in domestic rebar and imported scrap prices.
There is no question that rebar demand throughout the country will increase on reconstruction activities, though key factors remain unknown, including timelines, sourcing and changes in import/export policies or government implemented pricing or sales requirement schemes.
So far, the government has indicated a potential scheme to fix rebar prices on a US dollar basis, though market participants have questioned the feasibility because of Turkey's inherent and increased exposure to the global bulk scrap market.
Similarly, others have noted that a potential solution could also include removal on Turkey's 30pc duty on rebar imports, while some say that limitations on exports of rebar could also help to smooth the countries looming demand for material.
In 2022, Turkey exported about 6mn t of rebar, so even if all rebar exports were shifted into the domestic market there would still be a shortage if the four-month timeline was adhered to, and capacity utilization rates were unchanged.
Even if a combination of these scenarios is implemented, the net result will be increased steel demand and scrap consumption, which in the medium to long term will likely support and drive pricing.
Argus has tracked 18 deep-sea deals over the last 14 days, including five from the US, with HMS 1/2 80:20 pricing nearing $455/t cfr Turkey, the highest levels since late-May 2022, while expectations for further upside to scrap prices remain strong in the short term as gains in Turkish domestic rebar sales have outpaced scrap.
