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Uncertainty in Turkey as geopolitics roils marts

Keywords: Tags  scrap, ferrous, steel, exports, Turkey, Ukraine, Russia, Sean Davidson

NEW YORK — Uncertainty prevails in the Turkish steel and scrap markets as geopolitical events in the region could send prices for finished products and raw materials in any direction.

Sustained conflict in eastern Ukraine has hurt the flow of billet from Ukraine to Turkey, while fighting in Iraq has hurt demand for Turkey’s finished steel, market participants said.

While prime minister Recep Tayyip Erdoğan’s victory in Turkey’s recent presidential election has brought political stability to the country, it also means the nation’s currency and economy are now more vulnerable to outside events, according to several Turkish traders.

Recent developments have resulted in a stronger Turkish lira and could encourage scrap exporters to raise offer prices, some said, but others argued that mills need to book steel sales at stronger prices to accommodate any increases in scrap tags.

"(Currency fluctuations) will affect mainly the domestic market since the costs of steel mills are in dollars but income is in Turkish lira," one trader said. "Mills already made some revisions on domestic scrap prices last week but mainly in order to cover the (currency) fluctuation. If they keep the same levels for the domestic market, it means there will be (an) increase in import prices."

Others said demand for rebar is still weak. Mills have raised prices due to higher scrap costs, but sales reportedly are poor.

"Normally the impact of Erdoğan’s election should be positive and domestic rebar demand should pick up, but it is too early to see that," a second trader said. "We will see in the next days if such an impact occurs."

A third trader that mills will wait to see if their attempted price increases on finished products stick.

"While the election results will provide a feeling of economic stability to Turkey, it seems mills will resist (scrap) prices higher than $380 (per tonne)," a fourth trader said.

"It is obvious that Erdoğan’s victory will have a positive impact on the markets in Turkey. People consider the result as ‘continuing stability.’ On the other hand, the general outlook of the economy is not so good. Demand is slow as export markets are weak," said a senior executive at one Turkish producer. "More than this, the problem in Iraq is growing. Iraq is our second (biggest) export market after Germany. The terrorists in northern Iraq are gaining new places, and in the south Iraqi politicians are eating each other. Our total exports to Iraq dropped 50 percent over the past two to three months. Overall steel exports probably dropped 80 percent."

Nonetheless, turmoil in Ukraine could give scrap tags a boost as tightening billet supply will force producers to book more scrap, said an executive at a second Turkish producer.

"Scrap might get firm. The Black Sea is getting complicated. One (billet supplier) has already declared force majeure and others are asking for extensions on their existing contracts; therefore billet is getting tight," he said. "Power lines, railways and some facilities have been damaged by bombing in Ukraine that is causing problems for mills to ship their goods to the ports. Also, people are afraid to open letters of credit for Russian material since it may get blocked by the banks."

Market participants said that 10 scrap cargoes from the United States, England and the Baltic region were on offer to Turkey last week, but it’s unclear if any have traded so far.

"Everybody wants see the trend now. Mills have increased their finished product price by $8 (per tonne). If the market swallows it then they will push for more, I guess. Then (mills) will decide their scrap purchasing price," another trader said.

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