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The inward-processing regime allows tube & pipe manufacturers,automobile producers and others, to import flat steel free from import duties, as long as they export their end products.

But local mills have complained that some tube & pipe producers with inward processing licences have been selling the imported flat steel domestically, leaving Turkish flat steel plants idle as they struggle to compete with the low-priced imports.

Some traders, meanwhile, have expressed concern that Turkish flat steel producers have too-high profit margins and that end users have to import lower-priced flat steel to be competitive in foreign markets.

However, things could soon change, as the Turkish government usually announces taxation changes at the end or beginning of the year, and this year the sector expects to see further changes to the flat steel import duties and exemptions. 

Regime change?
In January 2009, Turkey increased import duties on hot rolled coil (HRC) from 5% to 13% and pushed up import duties on CRC from 6% to 14%, with the duty on coated coil imports set at 15%.

Then, in September 2009, Turkey's customs department amended the import charges, putting HRC at 9% and CRC at 10%, while keeping coated steel margins unchanged.

The duty for re-rollers of HRC is 5%.

The inward processing regime, which was originally put in place in 1996 and was revised in 2005, aims to encourage finished product exports from Turkey.

Producers, traders, and end users all have their reasons to agree or disagree with the duties imposed on imports and the inward processing regime.

Serkan Gürler, vice-chairman at the KMC (Kayseri Metal Centre) steel service centre is among those who think the inward processing regime is necessary and should not change.

“The tube & pipe producers in Turkey have to be competitive globally. But Turkish producers have $100 per tonne higher prices than the rest of the world,” he said. “How then can a white goods producer, or tube & pipe producer, compete in global markets?

"This issue is not only about Turkish domestic market, it is about global markets; it is about competitive exports," he added.

“For instance, a tube & pipe producer in China buys CRC at $600 per tonne and sells its end product to Egypt. Our [Turkish] producer buys CRC at $700 per tonne, {so] how can it find a market in Egypt?

“This is not only about tube exporters but also all other exporters who use steel as raw materials.” Gürler said.

Quality gap 
But Veysel Yayan, general secretary of the Turkish Steel Producers Association (TCUD) told Steel First in late September that the import duties have no effect on flat steel imports.

“We know that only 2-3% of total flat steel imports to Turkey are subject to import duty. Others are made via [the] inward processing regime.”

And while Yayan acknowledged that some Turkish traders and end users have suggested that “there is $100 per tonne price difference", he said "there is a significant quality difference as well”.

And he was not just talking about China, where steel exports have government support, and mentioned Slovenia, Italy, Romania, and France.

“They sell lower-quality material and do a significant discount to Turkey. [Turkish steelmaker] Erdemir is known for its quality”, he added. 

This is something Yayan reminded the anti-dumping investigation against Turkish HRC to the USA, which claimed that Erdemir has low prices, which runs contrary to Gürler’s claims. 

Yayan said that producers in the USA start investigations as soon as their profits fall to $70-80 per tonne, while Turks do not get even that level of profit.

He does not think the import duties will change this year even though the Turkish steel producers have asked the ministry of industry and trade on more than a few occasions.

Gürler said that, if Russian materials are low quality, how come Turkish flats producers import Russian slabs and re-roll into HRC. And he sees no difference between importing slab from Russia and importing HRC from Russia.

He said the import duties could be increased to as high as 30%. However, it would then become a burden for Turkish economy, as Turkish flat steel end users, such as tubes & pipe producers, white goods manufacturers and others will not be able  to find export markets, as they will no longer be able to compete with Chinese products.

“You can stop flats imports into Turkey, but you cannot stop Chinese exports to Egypt or other potential export markets, such as the Middle East, Latin America or Africa,” Gürler said.

He said all upstream mills in Turkey need to decide how to compete with the rest of the world, but added that, so far, the mills have preferredto take the easy way – government-imposed import taxes.

But he said that short-term solutions and forcing the government to protect the industry with tax walls – rather than taking logic decisions about cutting costs, improving technology, investing in energy-saving projects, and producing value-added products – will not be helpful in the long term.

In late August 2014, HRC importers complained that the duty is unfair because the necessary investment to set up a CRC mill is more than $2 million, while a tube & pipe production line can be bought for $250,000-300,000.

An executive at a CRC producer suggested, therefore, that the exemption from import duties should apply to CRC producers as well.

Stoking the arguments
On the processing front, some Turkish traders have argued that investing in electric arc furnaces (EAFs) for flat steel production is unprofitable, but, many mills in Turkey still preferred to do so.

Çolakoglu, Tosçelik, MMK Turkey [EAF idle since late 2012], and Habas all have EAF based flat steel production capacities in Turkey while Erdemir and Isdemir are the only blast furnace flat steel producers.

Gürler pointed out that the mills import Russian slab rather than producing their own slab, as production on EAFs is not profitable.

On the other hand, Yayan said there were times, four or five years ago, when producing from scrap was more profitable than using iron ore.

“We should not criticise the investments made years ago by considering today’s market conditions,” he said.

The Turkish Pipe Manufacturers Assn (Cebid) announced on October 14 that Turkey needs better regulation of the country's import duties.

Cebid chairman Mehmet Zeren said most countries impose no duty on raw materials imports – flat steel for tube & pipe production, for instance – while import duties on end products are generally high. In Turkey, Zeren said, it is the other way round – there are duties on flat steel imports, while tube & pipe imports are not subject to taxes.

Whether the government decides to change the import tariffs or the inward processing regime, or neither, the one thing that is certain is that the arguments are set to continue.