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EU Debt, MidEast Unrest Squeeze Turkey Steel Mills

EU Debt, MidEast Unrest Squeeze Turkey Steel Mills

Syria violence reduces access to Iraq as well; Colakoglu trades OTC steel derivatives

April 4, 2012 8:46 by



Slower economic growth in the European Union, unrest in Syria and tightening sanctions against Iran will keep margins slim in 2012 for Turkish steelmakers, an executive at producer Colakoglu Metalurji said.

Turkey is the world’s largest exporter of reinforcing bar (rebar), a long steel product mainly used for construction, and is one of the fastest growing of the top steel-producing countries.

It will be forced to look further away to sell its products this year, however, due to a demand decline in its traditional export markets in Europe, North Africa and the Middle East.

Profit margins at Turkish companies are likely to narrow to around 3 to 5 percent, squeezed between high raw material costs and slow demand, according to Ugur Delbeler, chief executive of Colakoglu Metalurji, one of Turkey’s largest steelmakers.

“Margins will remain slim in 2012 because Europe is an important trade partner for Turkey, and we certainly feel the effect of the slowdown,” Delbeler told Reuters on the sidelines of the Steel Orbis IREPAS steel conference late on Monday.

Demand for steel fell last year in the euro zone as construction and manufacturing activity slowed in the midst of a sovereign debt crisis, which led to economic contraction in a number of countries.

Demand for rebar by southern European countries such as Spain and Greece, in particular, has fallen by up to 75 percent from 2008, and the situation is not expected to improve any time soon as governments implement tough austerity plans.

Political developments in Northern Africa and the Middle East have also been depressing some countries’ imports of steel.

“What is happening in Iran, Iraq and Syria is disturbing our exports, and until these areas settle down we will have some difficulties,” said Delbeler, who is also the vice chairman of the Turkish producers association and a board member of the Turkish exporters association.

“Now we are exploring different markets. We are going further east to southeast Asia and to South andNorth America, but we are not able to obtain the same margins there that we can obtain in closer regions.”

REGIONAL INSTABILITY

The worsening violence in Syria has hit Turkish steel exports for several reasons.

“Syria is almost dead. It was a reasonable market for Turkey,” Delbeler said.

“Syria was also playing an important role because some of the material was discharged in Latakia to go to Iraq. Now that way is also closed, so we that’s limiting the quantities we can send to Iraq.”

Syria’s principal port city, Latakia, was handling most of its maritime trade before the fights disrupted activity. Many Turkish exporters also had been using the port to send goods to Iraq but now have to rely on ground transportation.

Tightening U.S. and EU sanctions to discourage Iran’s nuclear programme have reduced steel exports to another key buyer in the Middle East.

Russian producers in particular were selling construction steel to Iran, but with the implementation of tighter sanctions, a lot of this material has been redirected to the Black Sea, creating a glut of supply.

Delbeler said, however, he expected the steel market to be more stable in 2012 compared with high volatility in 2011.

He forecast rebar prices would average $680 to $690 free-on-board (fob) Turkey in 2012, while billet would be around $630 to $640 fob and hot-rolled-coil $700 fob, all similar to the average prices last year.

STEEL DERIVATIVES

The CEO of Co

lakoglu, which is one of the brands registered for delivery in warehouses monitored by the London Metal Exchange, said the company was mainly trading derivatives over the counter rather than on the exchange.

He explained that the relatively low liquidity levels were making it hard for steelmakers to participate more actively in the paper market.

“We still do look at derivatives but not to the extent that we were hoping too. We do some, not on the LME exactly. We do over-the-counter business using the LME prices and other indices as well,” Delbeler said.

A deadlock with the Turkish government over the tax status of the LME’s two locations in the country has been preventing Turkish mills from delivering steel to the local warehouses.

“In Turkey we are still trying to overcome that problem. We continue to discuss with the authorities. We cannot accept any different terms compared with other locations around the world,” Delbeler said.

Freight and transport costs have also discouraged Turkish steelmakers from delivering material instead to LME-registered warehouses such as Ravenna, in Italy, he added.     (Editing by Jane Baird)



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