At the SteelOrbis Fall'11 Conference&65th IREPAS Meeting held in St.Petersburg on September 25-27,we found the opportunity to meet Ugur Dalbeler,the General Manager of Turkey-based Colakoglu Metalurji and IREPAS chairman and we discussed about the IREPAS meeting,Turkish steel market,economic crisis rumors and general market outlook.
Mr.Dalbeler how was the IREPAS meeting,was there an optimistic mood?
I think it was fine and mood was optimistic.Sometimes expectations and uncertainties may fear people.This is the point where the importance of the exchange of ideas becomes apparent;people find the opportunity to reassure each other.Besides,a certain solidarity arises.When we set off 25 years ago,everything was quite different,than they are now.In the last four IREPAS meetings I see the same thing:The event starts with lots of uncertainties in the agenda,since our business is surrounded by uncertainties in the last three years.However,as the outcome of the meeting is positive,people have much confidence in us now.When confidence is there,it is not very meaningful to anticipate difficulties.
Which is the most affected party of the recent economic difficulties?Do you think traders suffer the most?
We all are being affected,both in personal and as regards to our businesses.There are many opinions out there,but I'm curious if they are based on realities.If they were,perhaps we would not have witnessed a year like 2008,neither the situation would have become as it is now.Certain things are out of our control.For example,in the past prices were all we were talking about.But in fact,neither we nor any group here have power to control prices,since it is the market dynamics which determine the prices.And there are numerous elements that form the market.Only from this presupposition one can understand the market:Can you adapt yourself to the market situation or not;can you survive in market conditions or not.Besides,if you find the opportunity to share here the information that you need,your life becomes easier.At least,you become more strong-minded deciding you next move.That's why I think this meeting is useful.
The great challenge of traders is their need to satisfy both producers and consumers.In the meantime,the increase in foreign exchange rate puts pressure on the shoulders of importer.And when any part of the business deteriorates,all the business becomes unbalanced.Only if all is balanced,a trader can get on with.
From the producer's point of view,we should adapt ourselves to market conditions as I mentioned earlier.If prices fall,then we should find the ways to reduce our production and raw material costs.If our business volume shrinks,then we should explore how we can increase our efficiency in order to survive in the market.
The stereotype of market player,who only wonders about what prices will be,or where he will sell his products falls behind the times.It's more important to concentrate on planning for the medium and the long term.One way or another production and orders will be always there.But what really matters is the sustainable profitability.
In 2012,which markets will be brighter for Turkish rebar exporters?
In 2012,we can gain back the rebar export volume that we have lost in the Middle East and North Africa.Besides,I think South America will remain a key market,but I don't know much about Far East.But steel trade has started to become more regional,with trade between long destinations becoming more difficult.However,Turkish mills can still do it.That's why Turkish mills differ from other suppliers,we can transport rebar anywhere in the world,though it's the less value added steel product.
Do you think mills from southern Europe,such as Italy and Spain will become competitors of Turkish mills in export markets?
I don't think so.If they could,then they would in the past three years.We have all been hard hit in 2008 and we reduced our productions.Nevertheless,in the year 2009 Turkey managed to keep its rebar export volume at 2008 levels.The main contribution came from Egypt,who bought 2.5 million mt of rebar from Turkey,and this offset the decline in Turkey's rebar exports to Saudi Arabia and the UAE.If European mills have had the ability,then they could find a chance get their share from this 2.5 million mt.But they got none.European mills may only penetrate into the Algerian market where they enjoy the advantages of a free trade agreement,whereas Turkish exports subject to 15 percent import duty.But in other markets,that is not the case.
Besides,it's not anymore only the price,which counts.To control a market,suppliers now should ship material in time and the way the buyer requests.Since nobody in the market no longer works with high margins,there is no place for flexibility.The customer should receive his order in time and as he wants.And we,as Turks,are really good at it.
What do you think about Turkish rebar suppliers'role in North America?
This year,we started to export rebar to the US market again.I was not hoping it.Can you imagine that we buy steel scrap from the US and pay$40/mt to bring it to Turkey and once we produce rebar or wire rod we pay$40/mt again to send it back to the US;and we try to offer competitive prices despite all these costs.It does not seem very feasible,since costs reaching up to$80/mt don't leave much room for competitive prices.However,we can do it,seeking every opportunity.This year,our rebar export performance to the US has exceeded our expectations so far.
In the Turkish domestic market,contractors are complaining about rebar suppliers'pricing policy,saying that mills are manipulating local prices.What do you think about it?
Contractors are our major customers and so a dispute is impossible between the supplier and its customer.?We must find the source of the problem and then solve it.Contractors are undertaking long lasting projects via tenders,calculating their costs according to price levels of that date.And when prices increase when the contractor decides to purchase the rebar,then his profit margin shrinks.That's when contractors complain about protectionism in rebar prices.But the real situation is quite different.Turkey's rebar imports reach 100,000 mt.If there is no import duty for rebar imports from Romania,Bulgaria,Italy or Greece,then we cannot talk about protectionism.We only demand protective measures for imports from the CIS,since the steel industry in Ukraine and Russia is subsidized.Along with subsidiary in power tariffs,these countries also apply export duty for steel scrap for at least the last ten years,whereas we receive no governmental aid.If no protective measure is applied for imports from these countries,our domestic industry will be hurt.
We think that the solution is switching from spot transactions to futures contracts.If contractors have known spot prices and forward prices for six or 12 months as well,then they may conclude rebar transactions according to this price information and may hedge his business,getting rid of all difficulties he faces now.It is also useful for the producer.Since rebar market in Turkey changes in weekly basis,producers also may face losses,due to changes in both raw material prices and finished product prices.
At this point do you think services of LME or CME may become widespread with pressure coming from contractors?
Yes,it's possible.The awareness for these services is limited yet.We should change our way of thinking.Besides,these tools are widely used for other metals.But,it also took time for other contracts to deepen.For example,it took almost seven years for aluminum contracts to gain liquidity.For steel contacts,the history is limited to 2-3 years.In futures markets,trade volume should grow for these markets to deepen and approach to the real market;and producers should get involved for a real increase in trade volume.For now,the gap between futures market prices and real prices is wide.
Another advantage that is widely ignored for now is that LME is a customer who will never turn its back on you.You can sell as much billet as you want to the LME with the term you desire,and when the term ends you can send the billet physically if it's advantageous,or close your position on the paper.
En passant,last year Turkey'rebar exports declined in favor of steel billet,since demand coming from the Middle East,and particularly from Iran increased significantly,along with prices.How is the situation this year?Will steel billet demand grow continuously in the Middle East,in line with the rising finished steel production?
Yes it may continue like this.As Turkish exporters,we did not feel the trade volume contraction back in 2009,thanks to the demand coming from Egypt.However,in 2010,Egypt's rebar demand regressed to 500,000 mt from 2.5 million mt.And this also affected Turkish mills.Nevertheless,it's the point where dynamism of the Turkish steel industry dazzles,because last year Turkish mills reduced their rebar production in favor of steel billet,since demand was there.Doing this,the Turkish steel exports witnessed a limited loss in 2010.
And steel billet prices increased...
Definitely,because steel production in the Middle East has significantly increased in the last few years.However,since investment for liquid steel production is higher as compared to rolling mill investment and besides it requires energy,and energy is not very affordable for many countries,potential for reaching to the level of producing liquid steel is limited.Thus,their dependence on steel billet prevails.In the meantime,the Middle East and North African markets are protected somewhat against the finished steel imports,whereas the situation for steel billet is different.For example,Morocco applies duty for rebar imports,but steel billet is duty-free.For this reason,exporting billet to these markets may be more advantageous.Last year,according to Turkey's average export prices,the gap between rebar price and steel billet price was$27/mt.But nobody van turn steel billet into rebar at$27/mt.This is not because rebar price is low,but steel billet prices are high This year,the margin seems even tighter.
This year rebar demand has increased both in the Turkish domestic market and Turkey's export markets.Besides,Turkish producers started to regain some of their old export markets,such as Hong Kong and Singapore,adding new markets to their portfolio,enjoying lively demand from Latin America.And in the first eight months of this year,Turkey's rebar exports grew 10 percent year on year,while its steel billet exports fell 26 percent.This shows that selling rebar is more profitable than selling billet.But if this situation changes,steel billet exports may increase again.
Since Russia sold much of its steel billet to Iran,the Middle Eastern and North African markets were under Turkish mills'control.However this year,the North African market has shown some slowdown.But I think North African markets will resume their high activity levels by next year,since there is still demand.It's only some fears that challenge people.
What is capacity usage level of Turkish mills?For Colakoglu Metalurji for example?
Currently,Colakoglu Metalurji is operating at about 80-85 percent of its total capacity.This rate is also valid for Turkish mills in general.
Last year Colakoglu Metalurji announced that it will start test production of new flat steel grades.What is the latest situation?
Yes we have started test production of new flat steel grades,such as rim grade steel and steel tube grade.But the majority of our production is destined to the production of commercial qualities.Among our major customers I can count steel pipe manufacturing,cold rolled coil manufacturing and steel service centers.But we try to expand our customer portfolio,since it's important to increase the share of high value-added steel.Focusing only on commercial grade steel production also means being exposed to a stronger competition.So it's one of our priorities to expand our product mix.It's been a year since have started hot rolled coil production.Our performance is good but we still have way to go.
Concerning a possible economic crisis,what would be direct effects of a such crisis on the Turkish steel industry?
In the short term,the depreciation of the euro brings two consequences for us.The first one is it's getting more difficult to penetrate to the European market.Secondly,sometimes European suppliers may become our competitors.In the meantime,Europe is one of our primary raw material sources.And weaker euro means cheaper scrap.
You are not pessimistic then?
No,I'm not.We have witnessed such challenging times,that now it does not seem there is much to get worry about,when Turkey is registering such growth rate.
What about the strengthening of the US dollar and its effects on the Turkish steel industry?
Since the Turkish steel industry is mainly based on exports,we are not using much the Turkish lira.We buy our raw material on the US dollar basis and we sell it on the dollar basis again.Even in our domestic market,steel prices are based on the US dollar basis.So it does not much affect us.In contrary,it may become useful in curbing imports,pushing down the trade deficit.Besides,our local costs decrease as the dollar gets stronger.When we say Europe is becoming more competitive due to weaker euro,we forget that it is not only the euro which depreciates against the US dollar,but the Turkish lira as well.So we,as Turkish mills,also benefiting from a similar advantage.
Thank you very much,hoping to see you in the next IREPAS meeting.
