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Factbox: Turkey's lira crisis fallout unsettles commodity markets

London — US plans to double tariffs on Turkey's steel and increase charges on aluminum sales have sent the lira into freefall and raised concerns over the country's economy. The weakness of the lira -- down 50% against the dollar this year -- has caused the cost of imported commodities to skyrocket.

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Related news: Turkey's crude oil imports in focus amid lira crisis

The following highlights what is at stake for the Turkish commodities landscape.

METALS

US imports of steel from Turkey totaled 514,577 mt in May, down from 1,035,943 mt a year, according to the US Commerce Department's Census Bureau. Turkey ranks seventh among all countries exporting steel to the US market.

Turkey is the largest exporter of rebar to the US, having sent 255,850 mt in 1H 2018. Steel rebar exporters reacted strongly to the latest intentions by the US to raise import tariffs. One source at a major Turkish mill said that, if these new tariffs are put in place, "there is no way to sell rebar" into the US anymore.

Retaliatory escalation is possible. Turkey is the largest importer of steel scrap in the world (20.98 million mt in 2017) and the US is its biggest supplier (3.79 million mt in 2017).

Any retaliation against US scrap has potential scope to cripple the Turkish steel industry because it produced 69% of its steel last year by melting scrap (in electric furnaces). Its ratio of steel scrap melted to crude steel produced of 80.8% is the highest among major steelmaking nations.

Turkey used 30.3 million mt of steel scrap in 2017 and had to import 20.98 million mt of this. Turkey is not a country rich in steelmaking raw materials.

Turkish rebar producers will now increasingly target the Asian markets and the Middle East.

NATURAL GAS

The first stage of the Azeri-Turkish TANAP pipeline delivering gas from phase II of the Shah-Deniz field in Azerbaijan across Turkey was commissioned in June, with capacity of 16 Bcm/year (but designed for an expansion up to 31 Bcm/year). TANAP is part of the Southern Gas Corridor, which also includes the South Caucasus Pipeline from Shah-Deniz to the Azeri-Turkish border and the Trans-Adriatic Pipeline from the Greece-Turkey border to Italy, which is already 75% completed and expected to deliver up to 10 Bcm/year by 2020.

On August 6, an executive order from US President Donald Trump granted a waiver to gas production from Shah-Deniz phase II from the US sanctions targeting Iranian companies (Iran's NICO holds a 10% share in the field). The law says the corridor "provides to Turkey and countries in Europe energy security and energy independence" from Russia.

Long-stalled efforts to bring gas from Iraqi Kurdistan are likely to be revived after November's elections in the province. Turkey's state gas transit operator Botas has completed its 20 Bcm/year capacity import pipeline to the border.

POWER

With 60% of Turkey's conventional thermal generation gas-fired, the sector is facing a crisis in earnings that may lead to bankruptcies unless the government intervenes.

Many operators have dollar-denominated debt, having borrowed heavily to fund development, while revenue in the swiftly devaluing lira had been fixed in the run-up to general elections June 24. A hike in gas and power tariffs to residential and industrial users on August 1 has done little to offset a concurrent 49.5% hike by Botas in gas-for-power generation tariffs.

It is now seen as too risky to develop merchant gas plant that does not enjoy offtake guarantees. Only renewables, indigenous coal and Russian-backed nuclear are seen as viable. While there is overcapacity today, with strong demand growth, analysts warn that in a few years there will be a generating shortfall. Combined-cycle plants are already coming offline. Four more built in the late 1990s are to lose their 20-year offtake guarantees between Q4 this year and end-2019, and will either be mothballed or dismantled.

OIL

Turkey imports more than 90% of its liquid fuels. As a result, the weaker lira will sharply increase the costs for Turkey's sole crude importer, state-run refiner Tupras. Turkish crude oil demand is seen rising this year, with Socar's new 210,000 b/d STAR refinery to be commissioned in the autumn.

Turkish crude imports in May averaged 426,167 b/d. Most of Turkey's crude oil imports came from Iran and Iraq which, combined, supplied slightly more than 70% of the country's crude oil.

Crude oil and petroleum products are mainly undertaken by tankers and two major international pipelines running through the country; the Kirkuk-Ceyhan Pipeline from Iraq and the Baku-Tbilisi-Ceyhan Pipeline from Azerbaijan.

Tupras' Izmit and Izmir refineries import mostly Iranian crude by tankers, while Iraqi crude is delivered to the Kirikkale and the Batman refineries by pipelines.

Turkish power market fundamentals (TWh)

Year Total Consumption Total generation Imports Exports Installed capacity (GW)
2013 246.4 240.2 7.4 1.2 64.0
2014 257.2 252.0 8.0 2.7 69.6
2015 264.1 259.9 7.4 3.0 73.5
2016 277.5 273.7 6.4 1.4 78.6
2017 292.0 295.6 2.7 3.3 84.8

Turkish gas market fundamentals (Bcm)

Year Gas Consumption Gas prod. Total gas imports Gas imports (Russia) Gas imports (Iran) Gas imports (Azerbaijan) Gas imports ( Term LNG Algeria & Nigeria) Gas imports (Spot LNG) Gas Transit (to Greece)
2013 45.9 0.5 45.3 26.2 8.7 4.3 5.2 0.9 0.7
2014 48.7 0.5 49.3 27.0 8.9 6.1 5.6 1.7 0.6
2015 48.0 0.4 48.4 26.8 7.9 6.2 5.2 2.5 0.6
2016 46.5 0.4 46.4 24.5 7.7 6.5 5.5 2.1 0.7
2017 53.9 0.4 55.3 28.7 9.3 6.5 6.0 4.8 0.6

Turkish oil market fundamentals (million mt)

Year Product Consumption Product Imps Product Exports Crude oil production Crude Oil Imps Transit Iraq-Turkey Transit Baku- Tbilisi- Ceyhan
2013 21.1 13.5 8.3 2.4 18.6 12.5 34.1
2014 21.9 15.0 9.3 2.5 17.5 7.6 35.6
2015 24.8 14.6 10.8 2.5 25.1 26.3 35.8
2016 26.7 15.1 9.7 2.6 25.0 25.8 34.6
2017 28.5 16.9 10.1 n/a 25.8 25.2 34.5
2017 Jan-Mar 5.9 3.2 3.0 n/a 6.2 9.6 11.2
2018 Jan-Mar 6.7 4.3 1.9 n/a 4.1 5.1 11.2

Sources: EPDK, Botas, Turkish state General Directorate of Petroleum Affairs, Turkish Petroleum (TP)

--Staff, newsdesk@spglobal.com

--Edited by James Leech, newsdesk@spglobal.com