Turkish rebar market grows in regional importance
By Ciaran Roe in London
April 4, 2012 - Turkish steel mills are selling the majority of construction steel production to local reinforcing bar consumers in 2012 as the domestic market shows signs of becoming a regional pricing driver.
Producers attempted to spark a regional turnaround in the long-rolled steel segment in the second half of March on the back of stronger local buying, a process that produced favorable results in 2011 when domestic consumption continued to soar.
The pattern has been repeated on a practically monthly basis in 2012, and at present it is no different: once cash-paying, prompt delivery local purchasers of reinforcing bar and other construction steels start to re-stock in Turkey, the mills then ramp up export offers for financed sales based on future production.
“Local buyers returned as the weather improved [following winter], and now we’re only offering at $685/mt ex-works Iskenderun,” one export trader at a rebar mill said Thursday 22 March. “This means May production is only available from $690/mt FOB.”
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Only a few days previously, sales were pushed through at $650-660/mt FOB Turkish ports to the United Arab Emirates, according to participants in the Gulf nation.
Since late March, domestic buying has calmed and offers have returned to $670/mt FOB Turkish ports.
Kerim Dilber of the Turkish Steel Exporter’s Association (CIB) envisions domestic demand for deformed rebars to continue to spiral upwards until 2015.
Dilber projected Turkish domestic consumption to increase above 15 million mt/year by 2015, and to hit around 13 million mt in 2012, according to statistics released at a recent industry conference.
Click image to view full size Turkish rebar, Black Sea billet chart
CIB expects total Turkish crude steel production to hit 38 million mt this year. The long-rolled construction steel segment will swell to 25 million mt in 2012.
“Turkish mills rarely achieve the full extent of the increase in offers for export sales when these domestic rallies occur,” one seasoned longs trader said.
“But if they start selling more domestically, this allows Ukrainian, Russian and -- if the euro/dollar allows it -- Italy and Spain to increase their offers in the absence of Turkish supply and sell in their place,” the trader added.
For instance, traders who picked up material on the spot market in recent weeks are easily able to undercut the asking prices quoted by Turkish mills for regional exports.
Two offers: one of Belarus-origin at $667/mt CFR Beirut for 3,600 mt, the other of Turkish material booked from early April production schedule and bid for at $670/mt CFR Beirut, demonstrate how traders are able to increase their own pricing on the back of a relatively soft Turkish domestic rally.
“There were large chunks of H2 2011 when Turkish steelmakers were content with selling large portions of their production locally due to cash payment advantages and higher prices; however, this disconnects them from international markets which leads to a loss in market share to regional competitors,” the longs trader said.
Clearly, then, Turkish domestic prices influence regional exporting mills’ mentality and price direction, but they also play a large part in determining semi-finished billet export prices from the Black Sea.
“Turkish producers sold something like 10 million mt of rebar locally last year,” a second international trader with detailed knowledge of the Turkish market said. “The Ukrainian and Russian mills take great interest in what happens in the local market in Turkey because re-rollers and regional long-rolled steel prices can be affected by this.”
The effect of the domestic Turkish market on Black Sea billet prices is in evidence in the chart above. Turkey imports some 2 million mt/year of billets, a large proportion of which comes from Ukraine and Russia.
The breakeven for billet to rebar conversion in Turkey is often cited as $60/mt, so when the spread between Black Sea billet exports and Turkish rebar exports slipped below this threshold last year, it signaled domestic Turkish sales were going through considerably above the realistic export FOB offer price.
One example of this trend occurred on 8 June 2011, when the spread between FOB Black Sea billet and FOB Turkey rebar slipped to just $37.50/mt as Turkish rebar prices rose considerably.
A similar situation occurred in early August: on this occasion the spread also narrowed to $37.50/mt; this time a lack of available Turkish billet acting as export competition was a contributing factor, given that the semi-product rose above $700/mt EXW Iskenderun for local pricing.
This spread split as wide as $70/mt in the first half of December 2011.
An exporter at a major Turkish billet producer believes the domestic longs market will never hold the regional price driving key: Ukrainian and Russian vertical integration provides steelmakers there with an insurmountable strength.
“Ultimately, the Ukrainians and Russians hold the key: they can undercut anyone regionally if they need to because they have captive raw materials supplies, whereas [Turkish producers] are reliant on imported scrap,” the exporter pointed out.
Next page: Domestic consumption growth to slow