Turkey coup close call a near black swan Black Friday for scrap market

Most predictions come with a disclaimer that if some rare, high-profile, unforeseen event were to occur, all bets are off. Usually that disclaimer is unwritten. Sometimes it is written.

Last Thursday a US ferrous scrap exporter was providing a routine market outlook and in an e-mail exchange concluded he was “confident we’ve found the bottom of this market for now (barring any black swan events).”

Popularized by author (and former derivatives trader) Nassim Nicholas Taleb, a black swan event is one that is unpredictable and could have catastrophic ramifications.

As chance would have it, 28 hours after the black swan disclaimer in my e-mail exchange, news of a potential black swan landing was unraveling across social media and cable news outlets as a coup d'état attempt was underway in Turkey.

There were certainly moments of unease amongst a US scrap supplier base that has grown so reliant on the country of 75 million sandwiched between Eastern Europe and Western Asia.

Upon hearing the news and seeing the images I recalled the Thursday e-mailer and his disclaimer. I immediately reached out to the scrap exporter/commentator who was surely having one of those “sometimes I hate being right” moments.

He fired back with a three-letter acronym we’ll assume meant Cover Yourself Always. “Nothing is ever for sure,” he concluded.

By now we all know what happened. The coup failed and order was restored.

We woke up Monday and the Turkish lira had recouped (no pun intended) some of its losses from Friday; there was no mass liquidation by scrap suppliers; there were no widespread reports of steel production shutdowns.

There likely would be no scrap market-changing reaction to an historic event, as there was in response to the fall of the Berlin Wall, the first Gulf war, the Great Hanshin earthquake in Japan in 1995 or the September 11, 2001, terrorist attacks on New York and Washington.

But for a few tense hours Friday evening in the US, nothing was for sure. It goes to show the importance of Turkey in the international seaborne scrap market.

Turkey’s mills account for only 2% of global steel production. But in a world dominated by China, that does not tell the full story. When it comes to scrap, Turkey does move the needle.

According to government data and the Bureau of International Recycling, only China, the US, Japan and South Korea used more scrap to make steel last year. And of those countries, China, the US and Japan are self-sufficient in scrap.

Turkey relies on the rest of the world for the majority of its scrap and the scrap world relies on Turkey as a customer. In 2015 Turkey imported 16.25 million mt of scrap. That is more than the next three largest importers — India, Korea, and the US — combined. Turkey imported more scrap than the entire EU-28 as well.

Steel mills in Turkey have done a better job of diversifying their scrap supply. In 2015 they dispersed their buying to the US (3.84 million mt), the UK (2.46 million mt), Russia (2.42 million mt), Belgium (1.33 million mt), the Netherlands (1.16 million mt), Ukraine (1.15 million mt) and Romania (553,000 mt).

That means more scrap suppliers than ever are reliant on Turkey and its future — and were likely watching the skies for the appearance of that black swan.