How would you evaluate the global steel market?
Global steel demand is expected to increase, but first we need to talk about the markets. When we look at Russia, consumption seems to be modest. We think that, if macroeconomic and geopolitical conditions are considered, steel consumption figures in 2015 will be positive.
We also think that the US market is strong nowadays and that it will maintain its strength for a while. However, when the downward trend in oil prices affects the US oil market, steel consumption may also slow down.
As regards Turkey, market conditions are tough for steel producers and we observe difficult times in terms of competition in the steel market. With high scrap prices and with the impact of low iron ore prices, there is a strong wave of competition from China. When all these factors are considered, 2015 will likely not be an easy year for Turkish steel producers. On the steel demand side in Turkey, we think the situation will be moderately positive and we expect two to four percent growth in steel consumption on year-on-year basis. We hope that there will be peace in Syria and Iraq and then there will also be steel demand coming to Turkish steel producers from these countries.
To sum up, we can say that 2015 will be a good year but there is always a chance that it might be a very, very good year.
What do you think of the impact of China on the global market?
At least for the next five years, China will continue to shape the direction of the markets with its volumes, capacity utilization and prices. The Chinese government appears determined to reduce capacities. They have already announced that 50-100 million mt of capacity will be removed from the market. So the reduction of utilization has started, not so rapidly, but it has started. We can say that in the medium term, i.e., in the next two to three years, China is not expected to issue further licenses for new capacities. In this event, it is likely that steel producers will see better margins in the medium term.
Regarding the situation in Ukraine, how will it affect 2015?
It is obvious that the geopolitical situation in Ukraine affects Russia and neighboring countries. Steel exports from Ukraine to Russia have been reduced by almost half. We hope that a solution will be reached and that the markets will regain stability and that previous conditions will be restored. On the other hand, decreasing steel production in Ukraine has handed Russian producers the advantage in terms of competitive prices. We think that this situation is temporary. When Ukraine regains its stability, Ukrainian producers will be back in competition, and we like competition, we are ready for it.
In a previous interview with SteelOrbis, an MMK Turkey official stated, "It is a time for survival, not for new investments." Do you observe any changes in market conditions?
Geopolitical and macro-economic circumstances are also affecting steel consumption, demand and prices. As Baosteel's CFO told me in March 2014 in Shanghai, it is ‘winter' for the steel sector and these current market conditions may continue in the coming one to two years.
Regarding MMK's operation in Turkey, does this investment fulfill your expectations? Secondly, how would you evaluate the performance of MMK Turkey in 2014?
We have always trusted the strength of the Turkish economy and we still do. We believe that the Turkish economy will continue to grow in the long term. Of course, some ups and downs may be seen. All this instability in Syria and Iraq and the slowdown in trade with the EU affect Turkey, but we think that all these factors will come to an end at some point and Turkey will be back on its growth track again. So we know the decision to invest in Turkey is the right decision and in the long term we believe we will see a greater return.
In the short term, it is obvious that we are not satisfied. The shutdown of the EAF was unfortunate. According to the analysis teams in our company, consumption will reach the point we desire in around 2016-2017, so we may resume HRC production again. When steel capacity adjustments will be seen in China, steel producers will be seeing better margins, maybe not in 2015, but in the following two to three years. In the medium term, we can expect upward movement in iron ore prices and downward movement in scrap prices. Also, when some alternatives are considered such as DRI, we may see some pressure on scrap prices.
The weak point of Turkish steel production is its focus on EAFs. We think that in the long term this will not be disadvantageous given the decreasing oil and gas prices, creating an advantage in electricity prices. This is just one detail. Thus, we can say that Turkish steel producers will have to survive in the next couple of years and then they will be in a much more positive place. We believe MMK Turkey will be there competing.
When we look at the US steel market, consolidation is one of the important aspects of their strength. As far as I know, 90 percent of steel production in the US is operated by four maybe five companies. Still their capacity usage is under 70 percent. So perhaps Turkish steel producers should consider consolidation more seriously in order to gain strength globally and to increase their margins. Turkish steel producers are so ambitious and professional at the same time, it is clear that they will not do this in the short term. However, Turkey has only two or three companies that can compete globally, so maybe not in the short term but in the long term consolidation can be considered. To combine and to have an integrated mill, a blast furnace, and an EAF at the same time is needed if one desires to be in the running in the global competition in the long term. MMK, for instance, is the best example as 80 percent of our output is from by integrated production and as 20 percent is EAF-based. Margins may differ depending on your production style, but, if the producer can avail of all technologies, it is an advantage obviously.