Turkey: Steel Industry Overview

Steel Map of Turkey

Export / import ratio in iron and steel industry which was around 146 % in 2002 showed a declining trend in the following years and decreased to 131 % in 2003, 113 % in 2004 and 84 % in 2005.

The sharp decrease in the export/import ratio in 2005 was a result of the 7.9 % decline in exports and 26.4 % increase in 2005 in imports in terms of value.

10 % decrease in Turkey’s total steel exports in terms of quantity was mainly caused by the drops in exports to the EU-25, USA and Far East markets. While steel exports have been decreasing, imports increase by 36 % in terms of value partly related to the overvalued Turkish Lira, caused Turkey’s imports from EU to reach around 2 times higher than Turkish exports to the EU for the first time since 1999.

National Restructuring Plan, submitted to the Turkish government in 2005 has not been approved yet. The delay in government approval of the National Restructuring Plan and therefore, submission to the EU Commission has created an unnecessary oversensitivity at the European Commission although our iron and steel foreign trade has been developing in favor of the EU countries.

In fact, even though the National Restructuring Plan has not been put into force, restructuring of the iron and steel industry has been started and will continue.

In this respect,

After the privatization of the government shares in Erdemir, iron and steel industry is now completely operated by the private sector,
Conversion investments to flat product production in İsdemir has reached to the last stages,
Investments of Çolakoğlu towards slab production has progressed a great deal,
Nursan started to produce its all billet requirements at its own electric arc furnaces,
Controlling shares in İzmir Demir Çelik was bought from a bank which has stopped new investments there for the last few years by a group which has been in the steel industry for years and quickly started modernization investments,

can be shown as good examples that Turkish steel industry stepped towards restructuring.

Today, steel industry supports the official approval of the National Restructuring Plan by the government as soon as possible in order to see the future better and make investment programs in accordance with it. It is important not only for the Turkish steel industry but also for the Turkish economy.

STEEL SECTOR IN TURKEY
Turkish iron and steel sector, the base of which was established in the 1930’s, plays an important role in the industrialization and development of Turkish economy. Iron and steel production was first started in Kırıkkale, which is now known as MKEK, in 1928, in order to produce steel products required for the defense industry.

The first integrated plant, Karabük Iron and Steel Works (KARDEMİR) began to operate in Karabük in 1937. In order to meet the demand for flat products, the second integrated plant, Ereğli Iron and Steel Works (ERDEMİR) started production in 1965. In 1977, İskenderun Iron and Steel Works (İSDEMIR), Turkey’s third integrated steel mill, came on line to meet the demand for long products and semi-finished products.

With the increase in the number of the private sector’s electric arc furnace steel mills after the 1960’s, the production capacity of the Turkish iron and steel industry reached to 4.2 million tons in 1980.

As a result of liberalization in economic activities, 1980 was a turning point, not only for the development of Turkish economy, but also for the iron and steel industry. During 1980’s, Turkish iron and steel industry, has shown a great progress in parallel with the establishment of the electric arc furnace mills and developments in the economic structure.

In July 1996, as a result of the agreement that Turkey signed with the European Coal and Steel Community (ECSC), elimination of customs duties mutually on steel trade, contributed to the development of the steel trade between Turkey and EU.

According to the statistics of 2005, Turkish steel sector, with its 20.9 million tons of crude steel production ranks as the 11th in the global steel output and 3rd in Europe. Turkey has three integrated iron and steel works, total capacities of each range from 1.000.000 tons to 3.000.000 tons and 18 EAFs whose capacities range between 60.000 and 2.000.000 tons.

The three integrated steelmaking facilities account for 6.3 million tons or 25 % of the 24.7 million tons of total crude steel capacity, while 18 electric arc furnace (EAF) mills’ capacity is 18.4 million tons – almost 75 % in the year 2005.

In the year 2005, 21.2 million tons (86 %) of the 24.7 million tons of crude steel production capacity is allocated to long products, 3 million tons (12 %) to flat products, while the remaining 492,000 tons (2 %) is to special steel products.

83 % of total crude steel production is directed towards long products; about 15 % is for flat products and only 2 % for special steel products.
In terms of production processes, 71 % of the total production is realized by Electric Arc Furnaces and the remaining 29 % by Integrated Facilities.
The share of steel products in total national exports increased from 1.9 % in 1981 to 10 % in 2005. On the other hand, Turkey’s share in the world steel production increased from 0.6 % in 1980 to 2 % in 2005.

Turkey’s finished steel consumption is increasing steadily since 2001. Finished steel consumption of Turkey, between the period of 2001-2005, increased by 110.7 % from 8.7 million tons to around 18.3 million tons. In 2005, when Turkish economy grew by 7.4 %, construction industry showed a great performance and grew by 21.5 %. High growth rate in the construction industry, due to the improving tendency in the Turkish economy, resulted in long product consumption increase of 27.4 %. Increasing trend in the domestic steel consumption relieved the necessity of exporting the surplus production especially in long steel products. In addition to the long steel consumption increase, flat steel and special steel consumption increased by 13.6 % and 16.7 % respectively. Turkey’s total steel consumption increase was 19.8 % in 2005.

Far East was the biggest export destination for Turkish steel products when China was dependent on imported steel. The share of Far East in Turkey’s total steel exports declined drastically from 73 % in 1993 to 15 % in 1998 and finally 5 % in 2005. During the last few years, owing to the excessive supply and fluctuations in the international markets, Turkey’s exports to those regions are showing a decreasing trend.
In 2005, despite of the uncertainties in the international markets and decline in steel exports to the US, EU and Far East markets 43 %, 28 % and 44 % respectively and 9.8 % in total, Turkey’s production increased by 2.4 % owing to the high demand in the domestic market. Turkish steel producers have offset some of their losses in those export markets by switching to the Middle East, Gulf Countries and North Africa and focusing on the developing domestic market.

In this respect, compared to 2004, while the share of the USA declined from 15.5 % to 9.7 %, the share of EU-25 from 25.6 % to 20.3 %, and Far East from 8.6 % to 5.3 %, the share of exports to the Middle East increased from 32 % to 41.7 and North Africa from 8.7 % to 11.9 %.
Due to the increasing petroleum revenues, the Middle East, North Africa and Gulf countries are expected to accelerate their investments to the infrastructure and this will increase steel consumption in those regions. It is expected that Turkey will partly offset its loses in the other export markets by focusing on Middle East, Gulf and North African markets.

Turkey’s steel exports to the EU and imports from the EU was around the same level in terms of quantity in 2005 owing to the 29 % decline in Turkey’s exports to the EU and 17 % increase in Turkey’s imports from the EU. On the other hand, in terms of value, Turkey’s imports from EU is about 2 times higher than Turkish exports to the EU. This is because, Turkey mainly exports semi finished and long products to EU, however it imports higher value added flat and special steel products from the EU.

In 2005, the biggest decline in Turkey’s steel exports was in billets, which dropped by 42 %. It is expected that Turkey’s exports of billet will continue to decline and Turkey’s production of high value added products will increase. On the other hand, conversion from long to flat products continuing in the framework of the national restructuring plan which is currently being evaluated at the governmental level, will also decrease Turkey’s dependency on imported flat products. In this respect, it is important for the Turkish steel industry that the National Restructuring Plan be submitted to the approval of the EU commission as soon as possible.

As a result of the decrease in total steel exports, increase in imports by 18.9 % due to the overvaluation of the Turkish Lira, export/import ratio declined from 115 % in 2004 to 84 % in 2005.

With the expiration of the European Coal and Steel Community (ECSC) agreement, the 5 year period to grant subsidies for restructuring or conversion of Turkish steel sector also ended in July 2001. However, since Turkish steel industry wasn’t able to complete its restructuring in this period, with the initiation of the steel producing companies, Undersecretariat of the Prime Ministry for Foreign Trade requested an additional 5 year period from the European Commission to complete the restructuring process in the industry which had already been started. As a result of the negotiations with the European Commission, it was agreed to prepare the “National Restructuring Plan” for the Turkish steel industry. The aim of the plan is to allow Turkish steel producers using government subsidies in their investments for conversion of the production capacities from long to flat products, increasing production quality, developing product range to higher value added products, reducing production costs and improving viability and competitiveness of the sector under free market rules. The “National Restructuring Plan” completed in coordination with Undersecretariat of the Prime Ministry for Foreign Trade, Undersecretariat of Treasury, EU Commission and our Association in July 2005 has not been submitted to the EU Commission yet.

In 2005, world crude steel production increased by 5.9 % to 1 billion and 129 million tons. Most of the increase in crude steel production was resulted from China, which raised its production by 24.6 % to 349.4 million tons and share in the total global steel production to 31 %. Due to the measures taken to cool the overheated Chinese economy, Chinese consumption increase started to slow down. However, Chinese production of crude steel continued to increase, which resulted in high raw material prices and low finished steel prices. Although iron ore prices increased by 71.5 % in 2005 contracts, finished steel prices declined, due to the overproduction in the industry especially in China.

Another important development in the Turkish steel industry is that Oyak acquired 49.29% of Erdemir’s shares through its subsidiary Ataer Holding A.Ş. with the total tender amount of USD$ 2.96bn. It was important that Oyak announced it will not leave the control of Erdemir to any potential partner in any condition. With the privatization of government shares in Erdemir, Turkish steel industry is now completely operated by the private sector which is also one of the targets of the National Restructuring Plan.

Turkish economy experienced high fluctuation during the 1990’s because of the economic crisis. After the last economic crisis of 2001, economy entered a period of steady growth. In this respect, Turkey’s crude steel consumption per capita, stayed around 150 kg in 1990’s, increased to 200 kg in 2002 and finally reached around 275 kg. in 2005. Triggered by the economic growth, Turkish construction industry expanded by 21.5 % in 2005. This improvement has increased domestic long and total steel consumption by 27.4 % and 20 % respectively. It is expected that the increasing consumption trend will continue in 2006 with the enforcement of the Mortgage law.

Source:- Turkish Iron & Steel Producers Association

Agreement between the European Coal and Steel Community (07/09/1996) and the Republic of Turkey on trade in products covered by the Treaty establishing the European Coal and Steel Community - Protocol 1 on rules of origin.

Developments In Turkish Steel Industry and Outlook (2007)
Turkish Steel Industry Overview (2006)
Turkish Flat Steel Products Overview (2006)
Turkish Steel Industry Overview (2002)
Free Trade Agreement on Steel Products Between EC and Turkey (26/08/2005)
Borcelik's New Hot Rolled, Hot Dip Galvanizing Line (2004)
Turkish Steel Stats
Turkish Steel Producers Overview
Turkish Steel Producers Per Type of Product

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