CIS steelmakers pressured by Turkish market crisis but low production costs offer advantage

Recent unfavorable developments in the Turkish economy - in the steel market in particular - caused by the aggravation of diplomatic relationships with the US has put pressure on CIS steel producers, both in terms of export volumes and prices.

“The presence of Turkish steel is becoming more and more tangible in all segments” a CIS producer told Fastmarkets MB on the sidelines of the 79th meeting of the International Rebar Exporters & Producers Association (Irepas), held in Istanbul on September 16-18.

Over the first nine months of 2018, Turkey exported 11.4 million tonnes of steel products, up by 12.5% year on year, according to Turkish Steel Producers Association. In September, shipments accounted for 2 million tonnes.

European markets such as Italy, Belgium and Spain were the main contributors to growth, according to the head of the Turkish Steel Producers Association, Adnan Aslan, quoted by the local news provider.

Turkish producers plan to expand into the markets of Southeast Asia, West Africa and South America, Aslan said in his statement.

In September the Turkish Steel Producers’ Association (TCUD) forecast Turkish steel exports would continue growing in the next few months because products will be offered at competitive prices due to the weakness of the Turkish lira.

The lira has lost a significant amount of value since early August, when political tension between Turkey and the United States worsened.

The lira was trading at TRY100 to $16.26 on October 8. It had been trading at TRY100 to $18.98 on August 8, and TRY100 to $21.84 on July 8, according to exchange rate website

Asked whether this situation would influence steel production volumes and exports from the CIS region, CIS producers said it would be unlikely, despite the fact Turkey started to buy less billet in recent months.

“Having knocked out Turkey with a 50% import tariff, the US also knocked out Iranian exporters with sanctions, so the CIS will replace these volumes,” a CIS-based producing source said on the sidelines of Irepas.

Yet, the competition will have a significant negative effect on prices, sources said.

“And the Turkish will lose because CIS producers’ production costs are much lower because they use their own iron ore and coking coal for production, while Turkey uses import scrap,” another producer said.

The current production cost of billet in the CIS, including fixed costs, is around $400-420 per tonne, depending on the mill, while the producing rebar from billet is $35 per tonne.

While in Turkey, the cost of billet production was estimated at $465-475 per tonne, and the cost of billet conversion into rebar was assessed as $30-35 per tonne.

Thus Turkish producers, who have recently been squeezed between high scrap prices and low, finished long-steel prices are currently facing comparatively low profit margins.

FastMarkets MB’s assessment of the Turkish export billet price was at $485-490 per tonne on October 4, down $30-40 from $515-520 per tonne fob on August 2.

The assessment for the Turkish export rebar price was $495-500 per tonne fob on the same day, down $40 from $535-540 per tonne fob on August 2.

The CIS export billet index was at $461 per tonne fob Black Sea on October 8, down by $40 per tonne from $501 per tonne on August 3.

Meanwhile Fastmarkets MB’s CIS export rebar price assessment reached $495-505 per tonne fob on Monday October 8, the lowest since August 2017. The assessment dropped $35-45 per tonne from $530-540 per tonne fob on August 6.