As Turkey is by far the largest importer of steel scrap, any changes in domestic demand can have a significant effect on the wider market for this commodity. In line with many other raw materials and steel products, the price of scrap has been declining over the past few years and by August 2015, the price had fallen by 37% in just a year. This decline was not as pronounced as the fall in slab prices, however, as they fell by 44% over the same time frame.
As other steelmaking costs had not fallen to the same degree, we saw that some producers in Turkey, instead of producing the semi-finished products internally, favoured importing slab and billet. These imports came from countries such as China and Brazil where the cost of the predominantly BOS dominated steelmaking had fallen considerably, and slowing internal demand had driven producers in those countries to search for export markets. As the year progressed further, however, the decline in the price of scrap accelerated and by October, scrap prices had fallen 55% from our reference point in mid-2014, compared to slab prices that declined by 50%.
In the first eleven months of 2014, Turkish imports of semis fluctuated between 291K tonnes and 488K tonnes per month before rising to 597K tonnes in December. As the differential between the price of scrap and semis narrowed during 2015, we can see that Turkey imported increasing quantities of billet and slab, peaking at 841K tonnes in September. During the last quarter of 2015, however, as the price of scrap went on another decline, Turkey started to ease up on its imports, finishing the year with 504K tonnes in December which was actually below the same month of 2014, the only time that happened during the year.
This pattern of semis imports was mirrored in the imports of scrap. Throughout 2014, Turkey averaged 1.6M tonnes of scrap imports per month but in December this declined to less than 1.3M tonnes. By September 2015, just when the tonnage of semis had reached its peak, the quantity of scrap imported hit its lowest level, down to just over 1M tonnes before rebounding strongly to finish the year at over 1.7M tonnes in December.
At the start of this year, the scrap/semis price differential has narrowed somewhat with both scrap and slabs having fallen by 54% from our benchmark in 2014. Is this enough to encourage Turkish producers to increase their imports of semi-finished products once again at the expense of scrap? Of course, given its size and ability to move the scrap market, lowering demand for scrap in the country due to falling semis prices will have a knock on effect, further lowering the price of scrap in a race to the bottom. With many steelmakers, particularly in China, now running at a loss, however, it does seem as though the bulk of the decline in semis prices is probably behind us which would suggest that in the medium term, Turkish steelmakers are likely to return to the scrap market for their raw material requirements.