Turkey searches for alternatives for steel imports amid geopolitical strains

With the Russia/Ukraine war disrupting imports of semi-finished steel from the Black Sea region, Turkey is reportedly looking for new trade partners, with a notable surge in shipments arriving from Asia and the Middle East-North Africa (Mena) region.

Historically, Russia and Ukraine have been major suppliers for Turkey’s semi-finished steel products needs. But the Russia-Ukraine war, and subsequent international sanctions on Russia, have disrupted this trade route.

According to the Turkish Statistical Institute (TUIK), in the first eight months of 2023, Turkey imported 4.3 million tonnes of semi-finished steel, representing a significant jump from the 3.04 million tonnes in the same period of 2022.

Russia managed to maintain its share, exporting 2.27 million tonnes to Turkey in the reported period versus 2.25 million tonnes in January-August 2022, partially due to low prices compared with other suppliers, according to sources.

Meanwhile, imports of semi-finished steel from Ukraine totaled just 51,201 tonnes in January-August 2023, versus 131,431 tonnes in 2022 and 688,905 tonnes in 2021.

The decline in imports from the Black Sea region did not lead to an import deficit. Instead, the share was filled by a surge in imports from alternative markets in Asia and the Mena region.

Notably, Algeria supplied 422,807 tonnes of billet in the reported period in 2023 versus 59,118 tonnes in the same period in 2022.

Malaysia was another country that significantly increased supplies to Turkey. In January-August 2023, the country supplied 364,320 tonnes of semi-finished steel to Turkey versus just 1 tonne in 2022.

Other nations including India, Indonesia, Kuwait, Oman, Vietnam and Iran also had significant growth in export volumes to Turkey, according to TUIK data.

The higher volumes of foreign semi-finished steel in the country was attributed to attractive import prices compared with local prices.

“Turkish billet imports rose significantly. It’s due to the cost of production. When you produce semis from scratch using scrap, it becomes more expensive. Hence, most mills prefer direct semis imports,” a Turkish mill source said.

Fastmarkets assessment for steel billet domestic, exw Turkey averaged $597.71 per tonne in the first nine months of 2023.

The corresponding steel billet index export, fob Black Sea, CIS averaged $523.56 per tonne in the same period, while the assessment for steel billet export, fob ports Iran averaged $504.68 per tonne.

A local trading source said that the import billet price would need to be at least $30-35 per tonne cheaper than domestic material for the purchase to be profitable.

In the meantime, Turkish mills will face even higher production costs starting Sunday October 1, due to a 20% hike in electricity and natural gas prices.

Market participants have estimated that steel production costs will rise by $15 per tonne for electric-arc furnaces following this increase.

Market sources, therefore, believe interest in imported semi-finished steel will remain high in the country.

The share of Russian supply, however, is expected to decrease in the near term, with Western countries blocking imports of steel produced from Russia-origin semi-finished steel. This measure is expected to come into force in October in the European Union in particular.

“[Regardless of] whether Russian material comes from a sanctioned supplier or not, Turkish buyers will try to buy less from them and explore other origins,” a Turkish trader said.

Malaysian steelmakers are also considering expanding their presence in Turkey, with Eastern Steel Sdn Bhd (ESSB) greatly increasing its annual steelmaking capacity from 700,000 tonnes of semi-finished steel up to 2.7 million tonnes.

The two countries are part of a free-trade agreement, which allows Turkish buyers to import Malaysian material duty-free, while for other origins, including Russia, they have to pay a 22.4% duty unless they export the final product made from foreign steel.

“It is going to be a game between Malaysia and Russia for Turkey [market share],” an international trading source said.

A Russian trading source, however, expects Russian suppliers’ position to remain strong.

“I believe that Russia will remain amid the top three semis suppliers to Turkey in the nearest time,” the source told Fastmarkets.

Published by: Vlada NovokreshchenovaCem Turken