Turkish steelmakers struggling amid higher costs

Turkish factories are in a difficult position due to the recent increase in energy prices, as well as high scrap prices in finished product prices amid sluggish mood in the domestic market and fierce competition in export markets.

Production costs for Turkish mills have risen markedly in recent years, especially for electric arc furnaces, with a 15% increase in electricity prices in early July further increasing the pressure.

“Energy is the second cost item for steel producers after raw materials. The cost of energy for Turkish producers has increased significantly in recent years. If we compare this with 2017, our energy costs have increased by about 100%, ”Ugur Dalbeler, CEO of one of Turkey's leading steel companies, Kolakoglu, told S&P Global Platts on Friday.

Dalbeler, who also serves on the board of directors of the Turkish Steel Exporters Association (CIB), said there are two main reasons for the rise in energy costs - the last resort tariff in Turkey and the Renewable Energy Support Mechanism (YEKDEM).

“The average electricity tariff in Turkey is currently 30 lira /kWh, and when we include YEKDEM, our electricity cost reaches 45 lira /kWh. Another problem at YEKDEM is that we cannot predict the price of the electricity we are using at the moment, since the bill is usually determined on the 20th of the next month, ”said Dalbeler.

Aside from domestic price dynamics, the lira's persistent weakness against the US dollar has also added to the cost of imports such as scrap, which is denominated in dollars, while wages and domestic costs such as electricity are paid in lira. The steelworker from Iskenderun said.

Changes in the cost of electricity alone have led to an increase in the cost of products such as rebar by $ 10 /ton, he said.

Relatively high electricity costs in exporting regions and high prices for iron ore are reflected in finished steel products, primarily rebar.

With a current rebar price of about $ 460 /t and below for some large mills and scrap import price of $ 295 /t CFR, this is a small margin or profit for most mills.

Market participants currently do not expect a strong drop in scrap prices or an increase in rebar prices in the summer months, and due to sluggish demand, some Turkish factories are already looking at further cuts in capacity utilization, which currently stands at around 60-70%. in Turkey, the source said.

“I know that all factories work a maximum of two shifts a day,” said one Turkish