Turkey’s tragedy spurs questions in scrap market

Turkey has for much of this century been the largest single importer of ferrous scrap globally. The country's sizable steel industry is powered almost completely by scrap-fed electric arc furnace (EAF) production.

Two powerful earthquakes rocked eastern Turkey on Feb. 6, causing tens of thousands of deaths and injuries and leveling thousands of structures. As of mid-February, the death toll still was being tallied.

The reaction of veteran ferrous scrap trader Nathan Fruchter of New York-based Idoru Trading to the news in Turkey was, he says, the same as that for everyone else: “What a horrible nightmare; the death, the destruction, the homeless situation for thousands of people.”

Several hours later, in part because of his role as a global ferrous scrap trader, Fruchter says he sent out more than two dozen emails to check on people he knew in Turkey. “All but one replied within an hour or two, and the common reply was an expression of sadness along with the message, ‘We’re strong and we will overcome.’”

As the week of Feb. 6-10 continued, Fruchter, like so many people in the sector, began following up on his own cargoes shipped to Turkey and tried to gauge the lay of the land in the nation. “Speaking to others in the industry, the words ‘force majeure’ came up very soon in conversation,” Fruchter says. “Were buyers going to declare it, on the grounds it was an act of God, as stated in certain contracts?”

As of mid-February, Fruchter says he and the wider market were experiencing something else instead. “I’ve heard heartwarming stories about mils not being able to take their scrap orders and asking friendly competitors to take their orders instead and divert their cargoes to other ports," he says.

“Between the different mills trying to help one another, we were able to divert two small ships that came into Turkey through the Mediterranean Sea, thankfully with ease, to another port and another buyer," Fruchter says of Idoru's operations. "Cooperation between buyers has been fantastic.”

Fruchter and other ferrous scrap veterans likely had an additional perspective when waking up on a winter Monday morning and hearing about a destructive overseas earthquake: familiarity.

In a 2017 interview with Recycling Today, Fruchter (who was working for Glencore from London at the time) recalled the immediate and the near-term impact of the 1995 Kobe, Japan, earthquake. The person for whom Fruchter worked at the time had no qualms about quickly reacting in the business sense: “Can you please make sure to go long, and I mean very long,” were the directions Fruchter received. “Suck up every single ton of scrap that you can buy across Europe. Don’t leave a single ton behind. By the time New York opens, make sure to be 500,000 tons long."

As Fruchter observed more than 20 years later, “The damage this Kobe earthquake created was frightening. Japan needed a lot of steel to rebuild. [Steel and scrap] prices skyrocketed.”

Fruchter says he will not be surprised if that type of historical pricing reaction repeats itself. “Some expect prices to collapse or drop sharply because they expected cancellations or requested delays,” he says. “Truth be told, there haven’t been that many. We really haven’t seen that. Most cargoes are continuing as scheduled.

“Frankly, quite the opposite is happening. While last week the entire Turkish steel industry was paralyzed, already on Monday, Feb. 13, seven days after the earthquake, there were reports of a U.S. and a European scrap cargo sale to Turkey.”

While in the short-term, ferrous scrap prices “might be coming down by a few dollars, and even that might be a knee-jerk reaction,” Fruchter says. “I think we need to see the forest behind the trees.”

By the end of the U.S business day Feb. 15, “There are already five if not six actual U.S. and European sales that have taken place, all from sizable recycling exporters,” Fruchter says. “This begs the question: Why on Earth would they be buying more scrap at a time like this? I think the writing is on the wall.”

He continues, “Several thousands of apartment buildings have collapsed in Turkey. Perhaps 2,000 to 4,000. While there is still cleanup to do, the fact is all these apartment buildings will need to be rebuilt. And that is going to require an enormous amount of steel—an enormous amount of rebar, beams and other steel products.”

The veteran trader looks at the situation and sees January 1995 all over again. “Considering the basic demand in Turkey for the next two or three years, it is obvious steel prices are going to shoot up and go higher," he says. "Then, scrap prices and other commodity prices follow as a result; that is pretty much a normal reaction.”

Where the additional steel will be made and subsequently how scrap will flow to feed the ramped-up steel production remain unknown. Part of that equation involves the extent of the damage to the Turkish steel industry, while subsequent Turkish steel export policy provides another aspect.

In mid-February, a Bloomberg report described one-third of Turkey’s steel capacity as being “paralyzed.” Ercan Ersoy of Bloomberg writes, “Large steel mills in southern Turkey are expected to remain shut for weeks, with production lines idle and workers trying to cope with the impact of the massive twin earthquakes that shook the region.”

The report further indicates about a dozen mills in the Iskenderun and Osmaniye regions, near the quake’s epicenter, are comprised in the damaged one-third of output. citing the secretary general of the Turkish Steel Producers Association.

Considering the enormous rebuilding tasks to be undertaken in the next three to five years, Fruchter says, “It likely behooves the Turkish government to cut back on their steel exports. They probably still want a balance of export sales, however, to generate U.S. dollars and bring them into the economy.”

Turkey’s economic picture was far from rosy throughout 2022, including within its steel sector. According to the Brussels-based World Steel Association, the nation’s output fell by 12.9 percent last year compared with the prior year—a drop of 5.3 million metric tons.

The handling of the Turkish economy by longtime President Recep Erdoğan has been called into question by numerous observers. Whether via internal flows of economic aid or assistance from overseas, rebuilding activity is nonetheless likely to ramp up during the rest of 2023 and pick up its pace in the following several years.

For ferrous scrap processors and traders in the United States, that almost certainly means increased export demand will arise from that activity. In the first nine months of 2022, despite Turkey’s steel output falling, the nation was the No. 1 overseas destination for exported U.S. ferrous scrap, with 2.5 million metric tons purchased by Turkish mills.

“Just consider how much more steel the Turkish economy will require,” Fruchter says. More Turkish-made rebar is likely to stay home, “so rebar buyers in other nations will have to look to other markets now,” he adds. “Those markets also will feel the need to ramp up production, which means even greater demand for steel and for scrap.”