FOCUS: Turkish steel mills should avoid price hikes following US import tariff cut, traders say
The United States’ reduction of tariffs on Turkish steel imports to 25% from 50% last week will only partially reopen the US market to Turkish mills, who should avoid raising prices if they are to successfully regain a share in that market, several sources told Fastmarkets this week.
The US has lowered its tariffs on steel imports from Turkey to 25% effective Friday May 17. Duties had been at 50% since August 2018.
The announcement caused optimism in the Turkish steel market, because US had been one of Turkey’s biggest export markets before the 50% duties were introduced.
Steel prices have been increasing in the country since then. Domestic offers for hot-rolled coil in Turkey are now $530 per tonne ex-works, up from $505-520 per tonne ex-works on May 23.
And hot-dipped galvanized coil (HDG) offers in Turkey rose to $685-700 per tonne ex-works on May 23 from $650-670 per tonne ex-works on May 17.
Market sources said they expect prices for other Turkish steel products, such as HRC and rebar, to also rise as a result of the reduced import tariff.
But some market sources spoken to by Fastmarkets have expressed concern that Turkish steel mills may raise their sales prices too quickly, which could offset the benefit of resumed exports to the US.
A Turkish flat steel trader said Turkish producers need to avoid sudden price hikes because the US is not a very big market for Turkish material now, but Europe is.
“If producers increase prices too much, European buyers may prefer Indian or other origin flat steel,” he said.
European market participants, meanwhile, said the tariff cut could mean Turkish steel originally destined for the European Union could now be diverted to the US, easing supply concerns there.
“I hope it will help to reduce import flow [of HRC] to Europe. It will depend on domestic prices in both US and EU, but the change still seems to be positive for the European mills,” a Northern European trader said.
“At this point it is too early to say what will be the immediate effect, as now import prices [mainly from Turkey] are too high for the EU. But hopefully it will ease the pressure from Turkish import in Europe,” an Italian source said.
Can Turkey regain market share in the US?
Turkey’s steel product shipments to the US totaled 120,948 tonnes in September 2018 but plummeted by 49.2% the following month to 61,471 tonnes.
Exports to the US hit at least a 12-month low of 10,751 tonnes in April this year, rebounding somewhat this month to 32,839 tonnes as of May 14, license data from the Commerce Department’s Enforcement and Compliance division shows.
The rebound was attributed to a Turkish delivery bound for the US that had been held in port since August 2018, waiting out the tariff increase and eventually shipped at a loss after the supplier could not wait any longer.
However, weak demand in Turkey’s domestic market is still a major factor affecting steel production. Turkey’s political imbalance remains a very serious factor in today’s ferrous world.
“As long as the current leadership remains in power, we may not see the end of political-related economic risks coming from the country,” Hartree Partners ferrous scrap trader Nathan Fruchter said, adding that Turkey’s detention of a US pastor and its determination to purchase Russian missiles caused political rift with the US to worsen.
Ugur Dalbeler, chief executive officer of Turkish steelmaker Çolakoglu Metalurji and a member of the board of directors of the Turkish Iron & Steel Producers’ Association (TÇÜD), said Turkish steel production and consumption decreased significantly in 2019.
Turkey’s steel consumption fell by 39% in the first three months of 2019 to 5.4 million tonnes from 8.8 million tonnes in January-March 2018, while exports grew by 18.7% to 7.45 million tonnes in the first four months of 2019, compared with 6.279 million tonnes exported in the first four months of 2018, Dalbeler said. But increasing exports did not help production increase, he added.
Turkey produced 11,233,000 tonnes of crude steel in January-April 2019, 10.5% less than the 12,548,000 tonnes produced in January-April 2018, according to the Turkish Steel Producers’ Association (TCUD).
The fall in output was largely due to negative sentiment that has been dominating Turkey’s domestic steel market since August last year, when the country’s lira lost significant ground against the dollar after US President Donald Trump doubled the tariffs on US steel imports from Turkey.
In addition, the European Commission imposed definitive safeguard duties on imports of a range of steel products on February 1, including from Turkey.
Local elections held in Turkey on March 31 have also been credited for decreasing steel production because steel buyers preferred to postpone bookings during the political uncertainty in the country.
The ruling Justice & Development Party (AKP) lost the vote in Istanbul to the main opposition Republican People’s Party (CHP). That result was formally challenged and the Istanbul election will be run again on June 23.
Dalbeler said the reduction of the US import duty will have a positive effect on the Turkish steel market, but Turkey’s exports may not increase to as high as they once were because the export market has changed since August 2018.
Before Section 232 tariffs there initiated, Turkey used to have a 15% share in the US steel imports market. However, the recent duty exemptions for Canada and Mexico announced on May 17 will not allow Turkish steel to restore its place in the US market, he said. Turkish steel will still be subject to a 25% duty, while Canada and Mexico will not pay any duty for their steel exports to the US.
In addition, Italy and Spain are now also targeting the US market, so Turkey will have to fight for market share, he added.
Adnan Aslan, the president of the Turkish Steel Exporters Association believes it is a positive situation that the US removed the extra duties, but it is still insufficient for Turkey to catch its previous export tonnages.
“The US government took a quick decision against our country on August 13, 2018, and closed the US market for the Turkish steel industry. In the meantime, the US domestic steel industry, taking the advantage of the trade barriers, could raise its capacity by 10%. The US domestic steel industry found a chance to increase its market share in an environment with no international competition,” Aslan told Fastmarkets.
“Besides, instead of the main players, who are excluded from duties, new countries, such as Qatar, Saudi Arabia and Algeria, started to export to the US,” he added.
“Due to these reasons, removal of the extra duties doesn’t mean that Turkey will resume exporting to the US as it used to do. The US market is not how we left anymore. It will not be easy for us to reach to our previous market share,” Aslan warned.
“We look at the US government’s decision positively but we do not expect it to compensate our loss completely in the US market,” Aslan said.
A Turkish trader shared the view that the removal of tariffs on Turkish imports do not mean the market environment has returned to how it was before: “I think that it is not correct to say that market has improved. All we can say is that since the announcement last week the mills are trying to increase prices and they think that by raising prices they will stimulate demand. However, nothing has changed on the demand side,” one Turkish trader said.
“My prediction is that Turkish mills will now try to raise prices, CIS mills already announced higher prices. But this does not stimulate demand and we will see that no one will buy at these prices,” he said, adding that basic demand is still very low in all consuming markets.
The US had been an important market for Turkish rebar before the 50% duty was introduced. Turkey exported 664,216 tonnes of rebar to the US in 2017, according to the Turkish Statistical Institute (TUIK).
Rebar exports from Turkey to the US fell to 305,794 tonnes in 2018 and only 18,227 tonnes in January-March 2019.
“Nobody really believes that this news [of a tariff cut] will have any big impact. The Turkish mills are just increasing rebar offers to give the impression that they will be able to sell big volumes into the US market after the import tariffs were cut to 25%,” one Turkish export trader said.
Turkish mills have raised rebar offers to $480-485 per tonne fob on an actual-weight basis, market sources told Fastmarkets on May 22. This compares with $450-460 per tonne fob on May 16.
Fastmarkets’ latest price assessment for rebar exports out of Turkey was $450-460 per tonne fob on an actual weight basis on May 16, before the US import tariff was reduced and down from $460-470 per tonne the week before.
“However, US anti-dumping duties will still apply on Turkish-origin material, [while] Canada and Mexico have had their Section 232 tariffs removed so they will be competitive again in the US,” the trader said.
“The US domestic price isn’t that strong right now, and their domestic capacity utilization has increased so they are less reliant on imports,” the trader added.
Fastmarkets’ US domestic rebar price weakened to $680-700 per short ton fob mill on May 15, down from $705-730 per short ton fob mill on April 3, the highest price point over the past 12 months.
Prior to the recent price volatility, the domestic US rebar assessment was stable at $700-720 per short ton fob mill between April 16, 2018, and February 4, 2019.
At the same time, Fastmarkets’ assessment for US imports of rebar was at $670-690 per sthort ton cfr port of Houston on May 15.
The price gap between Turkish-origin rebar imports and local US prices is currently around $120 per ton, following the cut in Turkish duties, according to Fastmarkets’ research team. This is the highest price gap between the two assessments since May 2017.
European long steel mills are cautiously optimistic of price increases following news of the cut in US Section 232 tariffs on Turkish-origin material.
“We believe that the Turkish-US situation will lead to higher scrap prices and thus higher EU prices but we haven’t raised offers yet,” one European producer source said.
“The US action will have an impact on the Turkish pricing mainly in the Far East (Singapore, Hong Kong),” the producer source added.
Fastmarkets’ daily Turkish import scrap index for Northern Europe-origin HMS 1&2 (80:20) was $303.33 per tonne on May 23 up day on day from $285.86 per tonne on May 22.
“The rebar market trend is turning more positive. The Turks are expected to sell a lot in the US market, meaning scrap demand will go up, raising the scrap price, which will in turn boost finished steel prices,” a second European producer source said.
“We also forecast demand to increase in the EU due to low stocks at end users,” he added.
Fastmarkets’ weekly price assessment for domestic rebar in Northern Europe was €525-545 ($586-608) per tonne delivered on May 22, unchanged week on week.
Other European market participants were less optimistic on the possibility of higher prices.
“Any potential price increase will definitely not happen in the next few weeks as there is too much import volume waiting at the ports for customs clearance on July 1, and this influx will keep the pressure on the European domestic price,” a distributor in the Benelux region said.
“The price will remain stable or even go down because of this,” he added.
European domestic long steel prices have weakened in recent weeks amid poor demand and hesitant buying activity amid uncertainty over the effects of the European import safeguard quotas on steel imports set in February 2019. The next annual quota period will begin on July 1, 2019.
For some in the scrap market, the reduction of Section 232 tariffs against Turkey was a “pivotal moment” for global ferrous scrap prices this year, Fastmarkets reported this week from the Bureau of International Recycling’s 2019 World Recycling Convention & Exhibition in Singapore.
“Sellers immediately withdrew the offers and buyers’ appetites immediately increased across the regions which we are selling into,” a European scrapyard source said.
Prices are expected to start on a bullish trend from now on and keep within a more stable range, market sources at the conference said.
About 69% (25.8 million tonnes per year) of Turkey’s 37.3 million tpy of steel production is based on EAF technology, while 31% (11.5 million tpy of steel production) is based on blast furnace technology, according to BIR statistics.
Turkey imported 20.66 million tonnes of scrap in 2018, down 1.5% year on year.
In 2018, the US was the largest supplier of scrap to Turkey at 3.71 million tonnes, down 2.4% from 3.8 million tonnes in 2017.
Turkey also imports sizable quantities of ferrous scrap from the United Kingdom, Russia, the Netherlands and Belgium.
Following the news, scrap suppliers pulled their existing offers, hoping to see a rise in prices.
“Scrap suppliers withdrew their offers and everybody is now waiting [on] the workable price for rebar exports into the US,” a Turkish source said.
Another Turkish source said suppliers had stopped offering material after the US removed the additional tariffs.
“The latest offer for HMS 1&2 (80:20) was $294 per tonne cfr for HMS 1&2 (80:20). But no price is available at the moment,” he said.
“I hear mills are willing to sell rebar to the US at around $670-680 per tonne cfr US [on a theoretical-weight basis], which is around $488 per tonne fob [on an actual-weight basis]. I think the deals will be done at $660-665 per tonne cfr US,” he added.
Fastmarkets’ weekly price assessment for rebar exports out of Turkey was $450-460 per tonne fob on an actual-weight basis on May 16, down from the previous week’s $460-470 per tonne.
As a result of a lack of fresh transactions, the daily scrap indices remained stable on Tuesday May 21. However, renewed buying activity led to a sharp increase to the daily index for Northern Europe-origin HMS 1&2 (80:20), which settled at $303.33 per tonne cfr on May 23.
Some Turkish flat steel producers also stopped accepting orders after the announcement of duty cut, and the expectation was that prices will increase despite weak domestic demand.
Price increases should not be too sharp however, because domestic demand for flat steel in Turkey is not strong enough to support higher prices, Turkish sources agreed.
Coated coil producers stopped accepting new orders on Friday May 17 and resumed sales on May 22 and 23.
Fastmarkets’ weekly price assessment for domestic HDG in Turkey was $650-670 per tonne ex-works on May 17, up from $645-655 per tonne ex-works on May 10.
Current offer prices from HDG producers were $685-700 per tonne ex-works. But no deal to the US was heard yet.
Fastmarkets’ fortnightly price assessment for US import hot-dipped galvanized coil was $980-1000 per short ton on May 15.
Freight from Turkey to the US is about $50 per tonne. Considering 25% duty, Turkish HDG costs $905 per tonne cfr US, which may be accepted by buyers, sources believe.
Turkey imports HRC and CRC mostly from CIS, where prices have not changed after the duty change.
“Even if the export market for Turkey improves [on lowered tariffs in the US] local demand in Turkey is so weak that prices [of import flats] will hardly increase,” one trader said. “There is a lack of clarity right now in the market, we need to wait for several weeks to make some conclusions. Earlier we were expecting the downtrend to continue till late summer, but now it may change,” one flats exporter from the CIS said.
Fastmarkets’ weekly price assessment for CIS HRC exports was unchanged at $460-480 per tonne fob on May 20.