TBY talks to Dr. Veysel Yayan, General Secretary of the Turkish Iron and Steel Producers’ Association, about the iron and steel sector in Turkey.
TBY How was the price of steel affected over the crisis period, and what are your expectations for 2011?
VEYSEL YAYAN Just before the global economic crisis steel prices increased considerably, and tonnage base prices came to around $1,500. During the crisis prices decreased sharply over two months from $1,500 to $400. At that time it was difficult to establish an acceptable balance between cost and price. Most companies tried to eliminate inputs in their stocks because the prices were even higher than output prices. In 2010, more balanced conditions were established and the world steel industry began to be profitable again. However, it isn’t possible to say profit margins were comparable to pre-crisis levels in 2010. The margins were also not enough to compensate for the losses some companies made over the challenging period of the crisis. In 2010, the basic barrier to establishing more profitable conditions was excess global capacity. Worldwide consumption in 2010 was 1.4 billion tons, with capacity at around 1.9 billion tons. In the coming years we are expecting the large gap between consumption and capacity to disappear as consumption continues to increase and old technology is phased out; this will promote better balance conditions, and work to improve steel prices.
Turkey is an increasingly important exporter of iron and steel products, and is also seeing a lot of domestic demand. What role does domestic demand play in the development of the iron and steel industry in Turkey?
In 2010, fulfilling domestic demand played a bigger role than exports did. Exports decreased around 9%. Even under these conditions, the export level was not negligible, hovering at around the 14-million-ton level. Turkey’s production also increased 15.2%. We are very quickly returning to pre-crisis levels. The per capita consumption of finished steel during the crisis year of 2009 declined to 249 kilograms from the 300-kilogram level seen in 2008. Turkey’s per capita finished crude steel consumption rose to 320 kilograms in 2010, and in the coming years we may pass the 400-kilogram per capita finished steel consumption level very quickly considering the stable growth rates in the country. The stability of the government and public investments will also support these developments. The economy performed well in 2010, with the growth rate reaching 8.9%, which was the highest GDP growth rate in the OECD and EU countries and third in the G-20. For 2011-2012 expectations are different, but the most modest expectations are around 4%. We expect, however, to see 6%. Growth in the Turkish steel sector will be around 15%, and exports will grow around 15%. This is partly related to domestic demand and to new capacities. In 2010 local companies increased domestic melting capacity by 4.9 million tons, which is expected to rise a further 3.7 million tons in 2011. We will see further capacity growth over the next five years time, a tendency supported by growing domestic demand.
Do you see room for foreign investors to enter the Turkish steel industry?
There are gaps in the industry for some types of quality steel related to the automotive sector and in stainless steel. Turkey is politically stable and this is supporting the dynamism of the economy, particularly the iron and steel industry. When a company plans to invest in Turkey, it should consider the potential demand level and not only the current demand level.
When do you expect Turkey to be self-sufficient in flat steel?
The base figures show that we will reach this target by 2013. However, knowing what will happen when we hit our targets is difficult, as it is hard to estimate the ever-increasing consumption levels. If we look at the figures, we are increasing our production level; however, consumption is also increasing at the same level making it difficult to close the gap. For this reason there may be the need for additional investment. Some companies will export, and imports will continue. If this stays around the same level, then production will continue to follow and match consumption levels.
In terms of exports, which markets are the most important, and how has that changed in recent years?
In the old days the EU market was more attractive to us. As conditions changed, the Turkish market became more attractive to the Europeans. When we had previously increased our exports to EU countries, EU steel producers started to make complaints and request protective measures. Total steel exports from the EU zone to Turkey in 2010 were around four times higher than Turkey’s steel exports to the EU in terms of value. Turkish steel producers have also managed to increase their steel exports to the US market in 2010 after the sharp drop in 2009. However, nowadays our main export destinations are neighboring countries such as Iraq, Syria, Israel, and Iran. We expect that some African countries will be good markets for us too depending on price conditions. In relation to our future involvement in EU markets, we hope to become more competitive again when the effects of the crisis fade and it becomes easier to compete in terms of price.
How would you evaluate the success of the Regional Mining, Metals, and Minerals Summit held in Istanbul in January 2011?
There were lots of participants from regional countries. Such events are crucial in order for relations to be established between different companies from the region. The summit allowed potential investors to understand market conditions and make more realistic business decisions. We hope that it will result in significant investments coming to Turkey.
You have highlighted Turkey as a diverse and strong economy. What are the country’s competitive economic advantages?
The basic advantage is its geographic position. Turkey is in the middle of the emerging economies. The countries in our region, particularly North Africa, saw continued growth during the crisis period. These markets allowed the Turkish steel industry to compensate for its losses elsewhere, and opened up new export opportunities for local companies. The Turkish economy provides good conditions for investors also, as well as access to the EU and to neighboring economies.
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