Analysis: Challenging Turkish export rebar market expected to continue in early 2020

London — The challenging demand situation for export rebar is expected to continue for Turkish mills in the first quarter, with potential exports to the EU not possible until at least April and continued political and trading uncertainty with the US.

The European Commission may bring forward the review date of the steel import safeguard quotas on Turkish steel as close as Q1, Turkish Trade Minister Ruhsar Pekcan said in mid-December, which could bring a small dose of optimism for Turkish rebar exporters.

Turkey exhausted its near 300,000 mt EU import rebar quota allocation for July 2019-June 2020 on October 28, 2019, and will only be able to next sell duty-free material into the EU on April 1, when it gains access to 30% of whatever volume remains in the EU's "other countries" rebar quota, which runs until June 30.

Turkish exporters also remain cautious on the final outcome of a US review into anti-dumping and countervailing duties currently imposed on Turkish rebar.

"I am concerned about the final decision on the removal of anti-dumping and countervailing duties on Turkish rebar into the US -- it's equally likely that the duties will remain because of US mill pressure," a Turkish trader said.

The continued uncertainty of the political and trading relationship between the US and Turkey is also likely to continue to limit rebar exports to the US, with only 85,730 mt sold into the US over January-November 2019.

Therefore, Turkish exporters are likely to focus their search for demand in 2020 on alternative products such as steel billet and wire rod, market participants said.

"Next year, we expect there to be more focus on export billet sales as rebar has lots of dutiesimposed on it," a second trader said.

Turkish mills shipped 1.21 million mt of semi-finished products, mostly billet, in January-November 2019, according to Turkish Statistical Institute (TUIK) data, sharply higher than the 881,420 mt exported a year earlier. Turkish mills' rod exports in the 11-month period were 1.71 million mt, 8% higher year on year.

EXPORT DIVERSIFICATION

Over the course of 2019, Turkish mills have managed to diversify export rebar sales destinations after the fall in demand from their traditional US and EU export markets, with regular volumes sold to Hong Kong and Singapore, markets where Turkish mills have not traditionally been so competitive.

Israel, Yemen and Ethiopia were also sources of rebar demand for Turkish sellers.

Turkish mills exported 5.45 million mt of rebar in January-November 2019, according to TUIK data, marginally less than the 5.68 million mt a year earlier.

While monthly export rebar volumes have increased, export rebar prices fell in the second half of 2019, which in tandem with rising import scrap prices, increased margin pressure on Turkish longs producers, who cut their capacity usages to as low as 50%, while some even paused their output from time to time.

Platts' Turkish export rebar assessment fell to a 2019 low of $399/mt FOB Turkey on October 8, having fallen steadily from $467.50/mt FOB on July 1. The assessment since recovered to $449.50/mt FOB on December 27, but fell to $444/mt FOB on January 6 on continued weak export demand and lower mill offers.

However, since October 31, the Turkish longs melting margin -- the spread between Turkish export rebar and imported scrap -- has largely remained below $160/mt, considered by market participants to be a break-even level for most Turkish producers.

The spread recovered from $140/mt on December 4, which was the lowest since February 7, to $150.50/mt on December 17, but has since narrowed to $143.50/mt on January 6. This level still represents a loss-making scenario for most mills, which is considered unsustainable over the medium term.

DOMESTIC DEMAND HOPE

Market participants are also hoping for greater domestic rebar demand in 2020 to reduce their reliance on export sales.

Rebar consumption in Turkey, which was as high as 13 million-14 million mt/year in previous years, fell significantly in 2019 because of a crisis in the construction sector.

The notable decline in Turkish inflation followed by consecutive interest rate cuts by the Turkish Central Bank has led to a recovery in sectoral confidence indices in the last month of 2019, including construction, which raised the expectations of demand increasing.

According to the latest TUIK data, confidence in the Turkish construction sector rose to 68.9 points in December 2019, after falling as low as 49.8 in the last months of 2018, on high inflation and interest rates.

However, the number of building permits granted in Turkey in Q3 2019 - the latest available TUIK data - totaled 14,434,800, less than half the number granted a year earlier.

-- Viral Shah, viral.shah@spglobal.com

-- Cenk Can, newsdesk@spglobal.com

-- Edited by Richard Rubin, richard.rubin@spglobal.com