For some time Turkey has been considered a major player in the global steel industry. Benefiting from a unique position, bridging East and West, the country has also undergone decent economic expansion in recent years with annual GDP growth regularly over 6%.
In recent months, however, a number of factors have combined to put some strain on the steel industry within the country. In Q1 2015, annual GDP growth slowed to 2.3% and in 2014 internal steel consumption fell by 1.9%, the first decline since the economic downturn in 2009. Other external factors affecting the industry include the rapid decline in the iron ore price and the dramatic rise in Chinese exports. China is by far the largest iron ore consumer in the world and BOS steelmaking accounts for 94% of the country’s total output. This contrasts strongly with Turkey, which is the world’s largest steel scrap importer where EAF steelmaking accounts for 70% of all crude steel produced in the country. Although the price of steel scrap has reduced in recent years, it has not undergone the rapid decline that iron ore has seen and this has meant that Turkey has struggled to cope with the increasingly prevalent steel exports from China which have been eating away at their export markets.
These effects can be seen through the analysis of the figures. So far, in the first four months of this year, Turkish crude steel production has fallen by nearly 7% when compared to the same period of 2014 and exports are down 6%, driven by declines in shipments of semi-finished products, heavy and light sections. At the same time, scrap imports have fallen by 13% and there is evidence that Turkish finished steel producers are finding it more cost effective to import blooms and billets than to manufacture them internally. Imports have more than doubled year on year driven by larger volumes sourced from Russia, Brazil and China. Import prices from Russia, the cheapest source, just £282 per tonne compared to the average price of scrap of £200 per tonne.
The year ahead looks uncertain for Turkish steel makers, whilst the fall in demand for steel scrap within the country is likely to lead to a natural decline in the price of the raw material, thereby making EAF steelmaking in the country more competitive, it seems unlikely that cheap steel exports from China and Russia are going to cease in the near future. With a slowdown in GDP growth and further uncertainty following recent election piling on the pressure this could be a difficult year.