Turkey's Kurdish arrests put kibosh on ferrous scrap trade

Black Friday usually refers to a day where retailers cut prices to stimulate consumer demand ahead of holiday/festival seasons. But it was a different kind of Black Friday for Turkey on November 4 as politics bit into trade and business.

The Turkish lira fell to a record low against the US dollar, at 3.1613 lira/USD, as the state arrested Kurdish opposition leaders and fears over Turkey's President Recep Tayyip Erdogan’s tightening grip on power intensified. The Borsa Istanbul exchange lost over 3% of its value.

“Today’s detentions send a chilling signal about the state of political pluralism in Turkey,” Martin Schulz, European Parliament president, said.

“With this last high profile string of detentions — a continuation of the crackdown on other HDP elected representatives — Turkish authorities are not just pushing Turkey further away from democracy, but they are also turning their backs on the values, principles, norms and rules underpinning EU-Turkey relations,” he said.

Many social media sites were blocked after the arrests, including WhatsApp — which has widespread use in the imported steel scrap market. “It’s been down all day,” said one European merchant that sells to Turkey.

“Between political turmoil, bad weather — which tends to stop rebar business quickly in Turkey — the high dollar versus the lira today, the Turkish steel sector seems to have taken a break,” another merchant said.

It topped off what has been a tough time for mills in the face of rising feedstock prices. Higher coke prices have filtered into the scrap market, as we suggested may happen in a recent piece, to the extent that Chinese mills are now buying US West Coast scrap — something of a peculiar and irregular trade route — in a bid to minimize coke usage. One scrap merchant in the US told Platts the last time he sold to China was a stunning 45 years ago. China imported 4.2 million mt of US scrap in 2011, but volumes fell below 2 million mt in 2012 and 2013 and remained under 1 million mt in 2014 and 2015 as Korea and Taiwan replaced it as the top destinations for US West Coast scrap.

The merchant said Chinese BOFs were looking to move up from a 5% scrap mix to 10%. While the percentage increase is not huge, it amounts to a considerable amount of tonnage given China’s overall production — this could serve to tighten the scrap market further and mean Turkish mills have to pay more. Indian mills have also come back to the spot market as higher coke prices are filtering into stronger sponge iron.

Domestic product prices have been moving up in Turkey, with one leading EAF-based longs maker increasing rebar and wire rod list prices five times since October 24. Export offers have moved upwards too. But there have not been too many large-scale bookings of rebar into the big markets of the US or Gulf Cooperation Council countries.

And the upward steel price rise this year has not massively outstripped cost increases, although the spread has moved out a bit — export rebar moved up from $324/mt FOB at the start of January to $407.5/mt FOB on November 4, while HMS I/II (80:20) import prices have increased from $186/mt CFR to $253/mt CFR over the same period. Over the same period the important scrap-rebar spread has risen from $138/mt to $154.5/mt.

The markets Turkey can access seem to be fining down now, with the US stating on November 3 it would announce countervailing duties on Turkish bar in December, as well as anti-dumping duties early next year.