Steel buckles in crisis
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Hurriyet Daily News
Oluşturulma Tarihi: Ocak 07, 2009 00:00
ISTANBUL - As the global economic crisis deepens, the iron and steel industry in Turkey is increasingly feeling the pain. While the industry performed well in production, exports and profitability in 2008, it is likely to face a sharp decline in growth this year.
Turkey’s iron and steel industry is suffering from stagnation in the construction, consumer goods and automotive industries, according to a report by the weekly Ekonomist magazine. As these industries are the main purchasers of iron and steel, and with the sharp decline in commodity prices, the industry faces a considerable meltdown in profit margins.
While the industry was expected to grow 12 percent in 2008, the deepening of the global financial crisis in the last quarter of the year caused an 8 percent downward revision of growth estimates. Now the industry’s growth rate for the last year is expected to have been a total of 4 percent.
As the industry’s 2008 growth rate was lower than expected, industry representatives foresee more trouble ahead. Estimates reveal the industry could face a contraction in 2009, ranging from 5 to 10 percent, said the Ekonomist.
Sharp decline in October
According to data from the Turkish Iron and Steel Producers Association, or DÇÜD, some 25.7 million tons of raw steel was produced in 2007. While Turkey exported 13.7 million tons of steel, worth $8 billion, it imported 13.2 million tons, worth $9.6 billion, in 2007.
Considering production rates for 2008, the sector grew 11.1 percent in the first three quarters of the past year, compared to the same period in 2007. Production in steel, which stood at 19.3 million tons in the first nine months of 2007, reached 21.4 million tons in the first three quarters of 2008.
However, Turkey began to be affected from contraction in the global markets in October. Production shrunk 17.8 percent in October from the previous year.
Expecting the industry to keep shrinking, DÇÜD Secretary General Veysel Yayan said reaching production figures of the previous year would be a success.
Namık Ekinci, board chairman of Ekinciler Holding, the mother company of Ekinciler Demir&Çelik, said sector players had cut production by as much as 30 percent "to keep spending under control and to meet declining demand."
The sharp decline in iron and steel prices will be observed in fourth quarter balance sheets of companies, pointing to profit losses. Prior to the crisis, flat steel was priced between $1,200 and $1,300 per ton, while the price of the long steel ranged from $1,300 to $1,400. Today, long steel is priced between $400 and $450 per ton and flat steel is priced around $600.
It is hard to predict the future, Yayan told the Ekonomist. "Depending on the realization of investments in the industry and assuming that the global crisis will calm down by the first half of the year, Turkey can produce 40 million tons of steel in 2009," he said.
Optimistically, the first quarter of 2009 will be better than the last quarter of 2008 in terms of global demand, said Ekinci. "Manufacturers will produce at low capacity for a while. I optimistically expect raw material production to shrink 7 percent and remain at the 25.5 million ton level this year."
Imbalance in production
Nearly 80 percent of Turkey’s total steel production consists of long steel. According to 2008 data, Turkey has an annual capacity to produce 24 million tons of long steel, while consumption ranges from 11 million to 12 million tons a year.
The trouble is on the flat side. Turkey produced 6 million tons of flat products by the end of 2008, but it only needed nearly 15 million tons.
According to World Steel Union data, with 25.8 million tons of production at the end of 2007, Turkey ranked as the 11th biggest steel producer in the world. Global steel production increased 7.5 percent, to 1.35 billion tons in 2007.
While the industry was expected to grow 12 percent in 2008, the deepening of the global financial crisis in the last quarter of the year caused an 8 percent downward revision of growth estimates. Now the industry’s growth rate for the last year is expected to have been a total of 4 percent.
As the industry’s 2008 growth rate was lower than expected, industry representatives foresee more trouble ahead. Estimates reveal the industry could face a contraction in 2009, ranging from 5 to 10 percent, said the Ekonomist.
Sharp decline in October
According to data from the Turkish Iron and Steel Producers Association, or DÇÜD, some 25.7 million tons of raw steel was produced in 2007. While Turkey exported 13.7 million tons of steel, worth $8 billion, it imported 13.2 million tons, worth $9.6 billion, in 2007.
Considering production rates for 2008, the sector grew 11.1 percent in the first three quarters of the past year, compared to the same period in 2007. Production in steel, which stood at 19.3 million tons in the first nine months of 2007, reached 21.4 million tons in the first three quarters of 2008.
However, Turkey began to be affected from contraction in the global markets in October. Production shrunk 17.8 percent in October from the previous year.
Expecting the industry to keep shrinking, DÇÜD Secretary General Veysel Yayan said reaching production figures of the previous year would be a success.
Namık Ekinci, board chairman of Ekinciler Holding, the mother company of Ekinciler Demir&Çelik, said sector players had cut production by as much as 30 percent "to keep spending under control and to meet declining demand."
The sharp decline in iron and steel prices will be observed in fourth quarter balance sheets of companies, pointing to profit losses. Prior to the crisis, flat steel was priced between $1,200 and $1,300 per ton, while the price of the long steel ranged from $1,300 to $1,400. Today, long steel is priced between $400 and $450 per ton and flat steel is priced around $600.
It is hard to predict the future, Yayan told the Ekonomist. "Depending on the realization of investments in the industry and assuming that the global crisis will calm down by the first half of the year, Turkey can produce 40 million tons of steel in 2009," he said.
Optimistically, the first quarter of 2009 will be better than the last quarter of 2008 in terms of global demand, said Ekinci. "Manufacturers will produce at low capacity for a while. I optimistically expect raw material production to shrink 7 percent and remain at the 25.5 million ton level this year."
Imbalance in production
Nearly 80 percent of Turkey’s total steel production consists of long steel. According to 2008 data, Turkey has an annual capacity to produce 24 million tons of long steel, while consumption ranges from 11 million to 12 million tons a year.
The trouble is on the flat side. Turkey produced 6 million tons of flat products by the end of 2008, but it only needed nearly 15 million tons.
According to World Steel Union data, with 25.8 million tons of production at the end of 2007, Turkey ranked as the 11th biggest steel producer in the world. Global steel production increased 7.5 percent, to 1.35 billion tons in 2007.