Interest rate cut boosts Turkish rebar prices further, trade fades

Turkey's Central Bank's (CBRT) 100 basis point interest rate cut on Nov. 18, despite high inflation rates in the country, has accelerated Turkish lira depreciation against the US dollar. Turkish long steel mills, squeezed between high energy and scrap costs and low demand, pulled up their lira-denominated domestic rebar list prices notably further to keep them stable on a dollar basis.

Trade in the domestic market almost faded away in this sentiment, as end-user demand, especially from the construction sector, fell notably amid the sharp rise in lira-based prices.

The lira lost a further 4% value against the US dollar following the CBRT's decision and currencies began to fluctuate in a wide range of Lira 10.85-11.25/$1 on Nov. 18 afternoon, which was historically a new low for the lira.

According to the CBRT's Nov. 18 Monetary Policy Committee report seen by S&P Global Platts, the bank has decided to reduce the policy rate (one-week repo auction rate) from 16% to 15%.

"[The] recent increase in inflation has been driven by supply side factors such as the rise in food, energy and import prices as well as supply constraints, increases in administrative fees and demand developments. The revision in the monetary policy stance has begun to affect commercial loans positively. In addition, developments in consumer loans are closely monitored... ," the bank said, adding that the Committee evaluated the impact of demand factors where monetary policy can have an effect, core inflation developments and supply shocks and decided to reduce the policy rate.

Highlighting that the Committee expects the transitory effects of supply-side factors and other factors beyond monetary policy's control on price increases will persist through the first half of 2022, CBRT said the Committee will consider completing the use of the limited room implied by these factors in December.

Some producers, including major long steel producer Icdas, hiked their lira-denominated rebar list prices further on Nov. 18 afternoon, while some were in a wait-and-see mode, monitoring the currency fluctuations.

Some Turkish mills raised their rebar list prices further to Lira 9,450-9,550/mt EXW, including 18% VAT on Nov. 18, equating to around $740-$750/mt, without VAT, due to accelerated lira depreciation following the CBRT decision. The exchange rate was Lira 10.85/$1 at 2:30 pm.

As Turkish depreciation accelerated after 4 pm, touching a new low of Lira 11.25 to the dollar, some of these mills reclosed their order books.

Most producers were in a wait-and-see mode on Nov. 18, monitoring the currency fluctuations. "We are trying to understand the developments, but it is underwhelming," one of them told Platts.