There is widespread optimism in the Turkish ferrous market that 2020 will provide some relief after a difficult 2019, when the industry struggled in the aftermath of the lira crisis while simultaneously displaying impressive resilience in the face of multiple headwinds.
Market conditions have been challenging for both Turkish steelmakers and ferrous scrap exporters throughout this year, as the difficulties caused by the 2018 currency crisis were compounded by the continued spread of protectionism in global steel markets and the ongoing US-China trade dispute.
The Argus daily HMS 1/2 80:20 cfr Turkey assessment averaged $339.63/t in the year to 19 December, down by $53.98/t, or 15.9pc, from the full-year average for 2018.
Export rebar prices fell in line, with the average daily Argus HMS fob Turkey rebar assessment decreasing by $82.76/t, or 15.5pc, to $452/t over the same period.
And most critically for Turkish steelmakers, the average between the imported spread and export rebar prices fell to $166.35/t through to 19 December, down from $195.13/t in 2018.
This overall average spread for the year has provided just enough leeway for the Turkish steel industry to hold off any transformative consolidation or reduction of steel output and capacity. Overall crude steel output was down by 10.6pc on the year to 27.9mn t from January-October, while ferrous scrap imports fell by 13.3pc to 15.19mn t over the same period.
On face value, these fundamental statistics reflect a year that has been difficult, but manageable for all sides of the market. No steelmaker or major scrap exporter has gone out of business or appeared close to doing so.
But beneath the full-year numbers lie some areas of concern. Overall steel output has been driven heavily by Turkey's largest steelmakers, with smaller steelmakers implementing lengthy production halts and cutting utilisation rates to low levels.
And scrap price volatility turned more extreme in the second half of this year after a relatively stable period of contained swings between January 2018 and June 2019. The Argus HMS 1/2 80:20 cfr Turkey assessment experienced its single longest sustained decline in more than three years from 23 July-30 September, during which time the index fell by $73.50/t.
That decrease was followed by an equivalent rebound of $78.50/t through to 19 December.
Export rebar prices have not matched the scale of the scrap increase, which left the scrap-rebar price spread perilously low, at $148/t, by 19 December. Turkish longs producers need to lift their rebar prices at the start of 2020 in order to avoid incurring some serious pain.
The continued squeeze of Turkey's overseas steel markets by protectionist measures such as the US section 232 tariffs and EU quotas means that the Turkish ferrous complex will likely require a strengthening of the country's domestic steel market to drive sustained higher price levels in 2020.
Fortunately, the outlook for next year supports an upturn in Turkey.
Turkish recovery set to continue through next year
Positive sentiment has been fuelled by the gradual recovery of the wider Turkish economy from the 2018 currency crisis.
Turkey recorded a 0.9pc year-on-year GDP increase in the third quarter, following three consecutive quarters of contraction on the same basis.
The country's inflation rates fell to a three-year low of 8.6pc in October, a far cry from the 25pc level at the peak of the 2018 crisis. Inflation ticked back up to 10.6pc in November but remained in line with expectations.
Treasury and economic minister Berat Albarak has set an ambitious 5pc GDP growth target for 2020. While this is not necessarily matched by external analysts, the outlook is still widely positive, with both the OECD and World Bank forecasting growth of 3pc.
One caveat for the steel industry is that Turkey's 2020 growth is expected to be driven by private consumption, with the construction sector taking longer to recover from the currency crisis than other parts of the economy.
But President Recep Tayyip Erdogan's government is continuing to pursue numerous major infrastructure projects that it hopes to advance further next year. Transport is a major focus area — projects targeted for completion next year and in the early 2020s include high-speed rail lines across Turkey, along with an expansion of the Istanbul metro.
And there is still strong potential for Erdogan's contentious plan to build a giant canal between the Black and Marmara seas to move forward in 2020. Erdogan in December said Turkey will soon hold a tender for the estimated 70bn Turkish lira ($12bn) project, despite strong local opposition, including Istanbul's new mayor, Ekrem Imamoglu.
In addition to domestic growth, many Turkish ferrous market participants are also optimistic that the creation this year of the ‘safe zone' in northern Syria will generate significant steel demand in 2020.
Turkey has created a project that would entail massive investment in the border region, with the goal of accommodating one million Syrian refugees. The plan would require investment of at least $26.4bn, for which the Erdogan government will seek assistance from the international community.
Potential risks to the recovery of Turkey's economy and steel sector in 2020 persist, mostly resulting from the country's ongoing shaky relationship with the US.
A US senate committee in December backed legislation to impose sanctions on Turkey after its military offensive in Syria and purchase of a Russian S-400 missile system. Erdogan responded by threatening to close down the critical Incirlik air base used by US and NATO forces.
Turkish ferrous market participants will hope that the tensions between Ankara and Washington can be cooled heading into 2020. If this can be achieved, there is significant scope for an upturn in the Turkish domestic steel market in particular, which will reinstate a strong bulwark of support for imported ferrous scrap prices.
