Turkey will rebuild itself – Newspaper Kommersant No. 24 (7469) of 02/09/2023

Russian metallurgists are assessing the consequences of the earthquake in Turkey, which is currently experiencing problems with steel production due to the shutdown of a significant proportion of capacities in the areas affected by the disaster. According to Kommersant’s interlocutors, Turkish metallurgists will be able to independently cover the demand for steel for restoration work, but at the same time they will have to increase purchases of raw materials for ferrous metallurgy.

Russian metallurgists do not expect a significant increase in demand for steel in Turkey in the near future and are cautiously assessing the possibility of increasing supplies in the long term, Kommersant’s interlocutors in the industry say.

Due to a strong earthquake, Turkey is experiencing problems with smelting capacity: according to Platts, plants located in the affected part of the country account for at least 25% of steel production in Turkey.

Production has now been stopped almost everywhere due to problems caused by damage to the gas pipeline and power grid infrastructure. In addition, the infrastructure of the region’s largest port, Iskenderun, was significantly damaged.

Turkey is the largest export market for Russian bare steel.

On the morning of February 6, an earthquake of magnitude 7.7 hit the southeast of the country, according to President Recep Tayyip Erdogan, it was the strongest since 1939. On Monday afternoon, another earthquake of magnitude 7.6 struck. According to the latest data, 8,574 people died, 49,133 were injured, and at least 6,444 buildings collapsed.

There are indeed problems with the capacities of Turkish metallurgists, says a source in one of the metallurgical companies in Russia, but there are also problems with logistics.

Thus, shipping operations in Iskenderun are not yet possible. Logistics company Maersk said on Feb. 7 that the port was significantly damaged and a fire broke out among the containers in the terminal following the earthquake. The company is not yet accepting new orders in Iskenderun. The port’s capacity is 1 million TEU and 2.5 million tons of dry cargo per year.

In the long term, as housing and infrastructure damaged by the earthquake are restored, some of Kommersant’s interlocutors expect an increase in deliveries of Russian metal to Turkey, while noting that export volumes will depend on how soon Turkey’s metallurgical capacities return to operation. Another interlocutor of Kommersant is sure that Turkish metallurgists will close the growth of domestic consumption themselves, since they are excessive in terms of capacity. However, the question arises with the supply of raw materials for metallurgy, the import of which may increase, including from Russia.

The export of Russian metal to Turkey is negatively affected by the import duty on flat steel, which was increased in January: the duty on hot-rolled coil increased from 9 to 15%, on cold-rolled coil – from 10 to 17%, on thick plate – from 9-15% up to 15–20%.

Boris Krasnozhenov from Alfa-Bank says that the Turkish market has traditionally maintained a surplus in long products (construction) and a deficit in flat products. Turkey imports flat products and exports long products, but in recent years, Turkey has begun to increase its capacity for flat products, the analyst notes. Mr. Krasnozhenov explains the increase in the import duty by the desire of the Turkish authorities to support local flat-rolled steel producers, who find it difficult to compete with Russian producers, which have a significantly lower cost due to the high level of effective vertical integration. The consequences of the duty may be a decrease in the marginality of Russian metallurgists and, possibly, an increase in the volume of exports of products of lower added value (slabs). “If we are talking about the consequences of the earthquake, then so far there is no reason to assume a significant reduction in production by Turkish steel companies. Problems in the port of Iskenderun may be temporary,” the expert notes.

Evgeny Zainullin