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Customs 'loopholes' fuel steel supply battle in Turkey

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Inconsistencies in Turkey’s customs policy are allowing foreign steel suppliers to exploit tax loopholes and put pressure on local prices, the chairman of local steelmaker Erdemir has said, while the domestic industry is lobbying for higher duty rates.

“There are some surprising points in the customs regulations at present,” Fatih Tar, head of the board at the Turkish mill, told reporters last week.

“For instance, we have customs duty of 9% for coil 1.5m wide. Thanks to gaps in the customs regulations, you can import the same coil at zero tax if you cut it into strips 20-30cm wide,” he explained.

“It makes a double loss for Turkey,” he added. “We miss both the tax and the work, and because of this we have [non-operational] cutting capacity of 7.5 million tpy in Turkey at the moment.”

'Unfair competition'
“We don’t ask for special protection [for the local steel industry] but we must prevent unfair competition. Iron and steel products have been imported into Turkey without any tax on occasions,” he said.

“Of course, there is customs duty of about 5-9% for imports of steel from non-EU countries and others such as China, South Korea and Japan, but about 90% of imported iron and steel is free of tax,” he said.

Tar also claimed that South Korea, Japan, Ukraine and Russia sell finished products to Turkey at $600 per tonne while they sell the same material at $770-800 per tonne in their local markets, although he did not cite any specific transactions.

Steel imports from Russian and Ukraine “disturb us”, he added, with import volumes from these countries and Romania now standing at a combined 4 million tpy.

'Paradise for imports'
“Turkey consumes about 13 million tpy [of flat products],” Tar said. “The country has turned into a paradise for iron and steel imports while local mills cannot operate at full capacity.”

Turkey imported about 11 million tonnes of steel in 2011, including semi-finished, long and flat products, according to Turkish customs. These high import volumes and the cheap prices of imported steel are the main challenges facing the domestic steel industry.

Turkish steelmakers have asked the authorities to bring in higher customs duties on imports, along with other forms of support which would allow mills to operate nearer capacity and lower their production costs.

The country’s steelmakers have a combined nominal capacity of 50 million tpy but produced only 34.1 million tonnes of crude steel in 2011, an increase of 17% year-on-year, according to the Turkish Iron & Steel Producers Assn. Mills operated at an average 68% of capacity in 2011.

End-users, however, say they prefer low customs rates for imports as this eases their access to cheap material and consequently lowers their production costs.

Lower prices
“We usually import hot rolled coil from Russia or Ukraine as the price is lower than from local steelmakers,” a commercial manager with a Turkish mill told Metal Bulletin.

“Of course, Russian or Ukrainian steel quality is sometimes lower than that of local products, but we do not need high-quality hot rolled coil to produce hollow sections,” he explained.

An economic consultant with a Turkish steelmaker said there was a “struggle” between steelmakers and the end-users which benefit from lower import taxes.

“The steelmakers and affiliated groups support the idea of raising customs duty to 15% or higher for imports of steel,” the consultant said. “However, a lot of Turkish industries which produce final products [from imported steel] are in favour of low customs duty as it helps them to cut their production costs.”

Sohrab Mehrabian 
smehrabian@metalbulletin.com

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