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Turkey’s steel industry faces declining competitiveness amid higher costs and shrinking exports

Thursday, 15 December 2022 17:25:21 (GMT+3)   |   Istanbul
       

Turkey’s steel industry continues to struggle to maintain its competitiveness in the global markets, as the efficiency of the country’s production model remains under pressure from increased costs. Many other global steel suppliers have not been facing any energy price surge or the effect on their business activities is relatively lower and possible to balance. In addition to high production costs, Turkey’s steel producers have been having a challenging time in sustaining active exports, which, combined with limited local business activity and high costs, forces them to cut capacity utilization rates. 

According to a discussion held during a panel at the Middle East Iron and Steel Conference in Dubai this week, the increased electricity tariffs in Turkey have boosted the share of electricity in the cost structure from seven percent to 25-27 percent currently. Sources at the conference noted that the situation is not related so much with the effects of the war in Ukraine on the global energy market, but mainly with the Turkish government making “a political choice not to subsidize heavy industries.” 

Along with the much lower flexibility of the Turkish mills, their costs are now higher than those of their rivals. In particular, in Turkey the price for electricity for industries went up from 4-5 cents to 20-22 cents per KWT. In the meantime, tariffs in the Far East are more or less at 10 cents and in the EU are at around 16-30 cents, according to the evaluations of Turkey’s Colakoglu Metalurji. “The higher cost is not easy to offset with the higher prices due to the increased competition, excess capacity in the global market and lower demand,” a representative of Turkish producer Bastug Metalurji commented. 

In addition to the high electricity prices, which boosted the related input up to $55-60/mt, the issue with natural gas is also very significant. “Today we do not know the prices for the next month, therefore we are not able to calculate the cost and give an offer to the customer which is fair for both sides,” Colakoglu Metalurji’s representative said. 

At the same time, Turkey struggles to maintain its export presence, facing numerous issues like global protectionism, competitive exports from other countries, and an increased overseas presence of players which were not seen previously and which are now forced to export as their local markets are in worse shape. Some of them, namely Egypt, have had to increase exports in order to generate foreign currency for raw materials. As a result, the competition in the market has increased significantly, while demand has been weakening. 

Turkish steel industry representatives stated that longs exports dropped by 16 percent in the first 10 months this year, while rebar sales alone recorded a strong drop of 20 percent. Turkey’s rebar capacity utilization for rebar declined by 10 percent over the same period. “The GCC and the Far East are not affected by the energy crisis, only Turkey and the EU, and this will continue until the war ends,” an M Steel representative said during the panel discussion. A reduction in production is the expected reaction of the mills in such a situation and more such reductions will be heard in the coming period taking into account that the installed capacity in Turkey is quite large for only local sales and a good share of it has to be exported. However, bringing down output is not an easy thing to do. “If there is no market, you have to decrease production in order to avoid bigger losses. We are trying to survive with a minimal loss, but we have labour responsibilities, so these decisions are not easy,” the Bastug Metalurji representative said. 

Overall, the panelists agreed that the first half of 2023 will be a challenging one and some improvements will start to be seen in the second half and will continue strengthening in 2024. As for demand, there are thoughts that the Turkish government will aim to boost construction ahead of the elections, though financing will remain an obstacle. As regards flats, the problems in the mid-term may be more serious if compared to longs, taking into account the upcoming new capacities - mainly for HRC, but also for CRC and coated steel. “The government has to stimulate consumption and production of white goods and automotive products, which will increase the demand for flats and there is a potential for that,” the M Steel official said during the panel discussion.


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