Abstract
The Turkish steel industry is suffering a sharp downturn in demand on domestic and external markets, but
BMI's latest Turkey Metals Report forecasts a rapid recovery from 2010 as the country re-establishes
itself as a strategic manufacturing base for world markets.
In H109, Turkish crude steel output was down 17.3% year-on-year (y-o-y) to 11.77mn tonnes. However,
there are strong signs that the industry is turning the corner: Q2 output down 14.1% y-o-y but up 15.0%
q-o-q to 6.29mn tonnes; and June output was down 12.7% y-o-y to 2.19mn tonnes, but up 28.8% over the
February low-point. This apparent recovery was stimulated by rising demand for longs ahead of the midyear
construction season, as well as by restocking and an overall rise in industrial output.
H109 steel product exports fell by just under 9% to 11.2mn tonnes, totalling US$6.44bn in value (down
45.2% y-o-y). The profile of Turkey's external markets also shifted away from developed markets in
Europe and the CIS towards emerging markets in the Middle East and Africa. With the Turkish economy
in recession and BMI forecasting a 5.7% contraction in GDP in 2009, the steel industry is set to suffer a
sharp decline in output. BMI anticipates a 5.6% fall in crude steel output to 25.32mn tonnes in 2009. The
decline in output will be sharp, but we expect it to be short-lived and that Turkey will retain its long-term
position as one of the world's largest steel exporting nations. The decline in primary aluminium
production is not expected to be as steep as steel, with the country's sole 60,000tpa Seydisehir smelter -
which has been operating at maximum capacity over the past five years - unable to fulfil all the country's
aluminium requirements. It will also face increased competition from remelters.
BMI forecasts a fall in exports of nearly 11% in 2009 to 16.3mn tonnes. However, there are a number of
risks that could affect this figure. Egyptian imports showed a marked slowdown in Q209 from the surge
seen in Q109, with reports of mounting stock inventories at Egyptian ports in May. If there is no revival
in the UAE market, exports could fall at a higher rate that we forecast. On the upside, the Emirates have
not scaled back government-funded infrastructural projects, providing steady demand for steel over the
near term. A major risk factor for the Turkish metals industry is the excessively volatile exchange rate,
which is making it hard for producers to plan costs. While we acknowledge the potential for substantial
gains in the currency in the short term, fundamental pressures over the longer term are expected to remain
firmly weighted towards weak lira performance. Turkey is also dependent on coal imports for two-thirds
of national consumption. The competitiveness of the steel and aluminium industry therefore depends on
the effectiveness of efforts to stabilise the exchange rate. BMI expects exports to recover in 2010 with a
rise of 7% to 17.45mn tonnes. By 2013, exports should total 27.82mn tonnes, an increase of 52% over
2008 levels.
In terms of imports, the government's move towards trade protectionism means that cheaper products
from Asia are less attractive on the Turkish market. From 1 January 2009, the government increased
duties on hot-rolled coil (HRC), cold-rolled coil (CRC) and hot dip galvanised steel. However, domestic
shortages have prompted steel end-users to put pressure on the government to reverse the rises. If the
duties are not reduced, steel imports could decline by over 30% to 9.07mn tonnes in 2009, the lowest
level since 2004. However, a strong recovery is anticipated from 2010, when imports are expected to
grow 13% to 10.2mn tonnes. By 2013, Turkish imports should total 15.8mn tonnes in volume and
US$15.4bn in value. The steel trade surplus should be around US$8.56bn, up from US$3.2bn in 2008.
However, imports could be revived if the government accedes to requests by steel end-users to revert the
duty increases.
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