All’s Quiet on the Mideast Front

Turkey sits in a key strategic area, not only geopolitically, but economically as well. The country, which has been seeking entrance into the European Union, sits at the gateway between the East and West. In its recent history Turkey has exported its goods primarily to Europe. More recently, because of its location, Turkey has been growing its trade relationships with other regions of the world, notably in the Middle East. Further, the country has taken steps to expand its trade with the rest of Asia as well as into Africa. Its ability to balance its connections to the European, Middle East and Asian markets has helped the Turkish economy to thrive throughout the past decade.

The Turkish economy, which is the 15^th largest in the world, has had six consecutive years of strong growth. While Turkey primarily trades with Europe, it also has benefited from a surge in the economies of many Middle Eastern countries as well as from other regions of the world that aren’t often sought out as trade partners by many Western countries.

In addition to a robust economy, Turkey also has a fairly vibrant steel industry. Because of this, Turkey has been a strategic buyer of ferrous scrap.

In a recent interview with a Turkish newspaper, Serdar Kocturk, president of the Istanbul Iron and Steel Exporters’ Association, says America is the country’s largest trading partner when it comes to iron and steel scrap. Turkey’s yearly iron and steel scrap imports in 2007 reached 17.1 million tons, 3.9 million tons of which were from the U.S. In the first six months of 2008, Turkey imported 2.3 million tons of iron and steel scrap from the U.S. at a value of more than $1 billion. "In other words, the volume of our iron and steel scrap imports is higher in value than our steel exports," Kocturk says.

According to another report, last year Turkey was a top destination for U.S. ferrous scrap, with between 4.5 to 5 million tons of material shipped. This is an increase of more than 25 percent from figures for the previous year.

In total, Turkey imported nearly 17.5 million tons of ferrous scrap in 2008, which is a 1.6 percent increase from the previous year.

Other large ferrous scrap exporters to Turkey included Russia, which shipped Turkey around 2.2 million tons of the material, a decline of 36 percent from the prior year; the United Kingdom at 1.8 million tons; Romania at 1.4 million tons; and the Netherlands at 1.1 million tons.

Throughout the past several years, Turkey has grown to be one of the more dominant steel-producing countries in the world. According to the most recent statistics released by the International Iron & Steel Institute, Brussels, Belgium, Turkey is the 11^th largest steel producing country in the world, with total production of approximately 26.5 million tons. The data also ranks Turkey above Taiwan, Spain, France and Mexico in terms of steel production.

Currently, Turkish steel producers are shipping material to the United Arab Emirates, Germany, the United Kingdom, Russia, France, Italy, the U.S., Saudi Arabia, Iraq, Romania and Spain.

As Turkey starts diversifying beyond Europe, the country’s main foreign trade partner with 46 percent of its total exports, several Middle Eastern countries have arisen as new partners. Trade with the Organization of Islamic Countries has reached a total of $58.2 billion as of November 2008, a 52 percent increase when compared with the $38.1 billion exchanged during the same period in 2007. During the past six years, Turkish businesses have increased their trade volume with countries throughout the Middle East, Africa and Central Asia.

The United Arab Emirates, which has used its petro dollars to modernize its cities, has been a significant consumer of steel, often from Turkish suppliers. Other Middle East countries, such as the Persian Gulf states, as well as Iran also have been consumers of Turkish produced steel. According to one forecast, the Middle East region accounts for approximately 35 percent of the country’s steel exports.

Being situated so close to growing Middle Eastern countries has helped strengthen the Turkish steel industry. The country is among the 10 largest steel exporting countries, with annual export sales topping 11 million metric tons.

A recent report by the U.K. consulting firm MEPS notes, "In recent years steel production rates in Turkey have risen faster than in any other European nation. The country’s crude steel output rose by about 60 percent between 1993 and 2003."

The economic growth in many developing countries has fueled Turkey’s climb up the economic ladder.

However, these developments have come to a halt, leaving Turkey, like most other parts of the world, suffering from an almost overnight halt in demand for its finished steel.

Reflecting the difficult conditions for the Turkish steel industry, Erdemir, the largest steelmaker in the country, recently reported a quarterly loss of nearly $700 million, which was far greater than the company’s expected quarterly loss of slightly less than $200 million.

With the sharp loss for the quarter, Erdemir has stated that if it does not see a pickup in new orders, it may halt production in April. The company also is considering halting some planned investments during the next several years.

One Turkish newspaper notes that prices for steel long products, which rose to $1,500 per ton last year, have declined to $350. Veysel Yayan, secretary general of the Turkish Iron & Steel Producers Association, says, "In May, June, July and August last year, our exports stood at $2.5 billion. However, the figure was $820 million in November. The losses in scrap and final product stocks are added to the picture."

Like many other countries, the rapid decline in the Turkish economy has resulted in the government putting together economic stimulus packages. The Turkish government has recently announced its fourth stimulus package. While the package attempts to stem the decline in the Turkish economy, a number of components could benefit the domestic steel industry and the ferrous scrap shippers supplying those mills. One of the more promising steps is a tax cut on automobiles, home appliances and houses. The goal is to boost consumption, which will have the trickle-down effect of improving the steel industry.

Along with tax cuts, the Turkish government has increased tariffs for some steel and iron products by as much as 13 percent to 15 percent.

According to some reports, Turkish buyers are carefully re-entering the scrap market. While on the surface this looks promising, the reports indicate that scrap prices are far lower than those offered last year.

A report by Russian news and research firm Rusmet notes that after sluggish markets in January, some Turkish steel producers have worked through much of their inventories and are coming back into the ferrous scrap market. The report notes that despite the modest pickup in interest, prices for ferrous scrap remain low, as finished steel prices continue to struggle.
Turkish steel mills produce large volumes of rebar. However, the continued problems with Europe’s economy have resulted in declining rebar prices, translating into lower prices for raw materials used to make the steel.

In early March, scrap prices into Turkey dropped sharply. According to one report, shredded scrap from the United States declined by $25 to $30 per metric ton. Other grades of ferrous scrap also posted similar declines. Reports also indicate that ferrous scrap shipments from other regions, including Eastern European countries, declined similarly.

Prices for rebar have been dropping significantly throughout the world. Several reports note that rebar prices declined a further $20 per metric ton in the middle of March. At the same time, demand from the Middle East has fallen sharply. Rebar shipments to the Middle East, which stood at around 500,000 metric tons last July, have dropped to nearly 200,000 metric tons per month during the first quarter of this year.

Earlier in 2009 there was an increase in prices for steel billets and for ferrous scrap as Turkish buyers re-entered the market. But prices settled back down relatively quickly.

According to figures from the Central Bank of Turkey, the country’s economy is expected to contract by roughly 0.4 percent this year, the first time in nearly 10 years that the country is expected to report such a disappointing number.

Only 17 percent of Turkey’s finished steel output is flat-rolled products, and the country is a significant importer of these steels. According to published reports, several of the larger Turkish steel firms are undergoing projects to increase the production of flat-rolled steel.

Even with the bleak short-term news, longer forecasts can be bullish on Turkey. As the country shifts its attention to its Middle East neighbors, investments have grown from around $500 million between January through October of 2007 to $1.9 billion during the same period in 2008. In addition, Middle Eastern countries have established 471 new companies in Turkey in the last year.

Even with a challenging economic environment, it seems Turkey will be able to marshal its position as the gateway between continents to greater growth opportunities in the years ahead.