General survey of international markets
After many years, Turkish steel industry was very buoyant back in 2002. Subsequently, in the beginning of 2003 activity was observed however, towards the end of first quarter, markets softened a bit, which can also be considered as a market correction. Raw material costs which were relatively dropping at that period misdirected steel producers in a way. But, as a result of unbalanced supply-demand due to extreme purchases in
China, prices particularly raw material prices again reached to early 2003 levels in markets that sheered towards summer months. Hence, growing difficulties of electric arc furnace producers which are mainly dependent to
scrap imports had a chance to be eased up to a certain extent, with strong product demand starting to improve simultaneously in
Far East. However this time,
freight costs that have gone up as of the second half of the year to highest levels in the last 40 years, again due to massive purchases and demand in
China, and increase of which could not be foiled till now caused new problems for the producers in terms of imports and exports. The demand, deriving from
investments and
production increase in
China, had naturally shifted majority of the raw material trade worldwide to this region and caused prices to move upwards at an unprecedented rate as from particularly the last quarter of the year, covering first few months of 2004, and reach unprecedented levels. While
scrap prices rose to $300/mt levels for Turkish market,
iron ore and coke shortages were seriously felt globally. Anticipations stating that electric arc furnaces, cost structure of which consists mainly of
scrap, will be less competitive owing to hikes in
scrap prices compared to blast furnaces which use
iron ore for
production in medium term were suspended for a while as producers in the US and EU had reportedly halted
production by reason of
iron ore and coke shortages. Lately, another important event was that the US had to lift safeguard measures which were found illegal by the order of World Trade Organization (WTO). Implementations such as quotas and high tariffs by the US since the beginning of 2002 were terminated first by US, followed by the EU and
China which have implemented similar measures. Although it was worried that these developments will cause distress in the markets and start a downward trend in prices particularly in those markets, above cited concerns later on turned out to be groundless as demand in the US started to increase. Even nowadays, though demand in
Far East is relatively slow and certain market correction is observed, strong demand in the US plays a very important role in maintaining price levels for both long and flat products. Moreover, in product basis, the highest prices are seen in the US market as of today. Comparing export prices for 2003 and 2004 of
Turkey's sole steelmaker
Erdemir, producing flat and
coated products, will give a hint in stating price increases on
Turkey's side.
Erdemir, raised export prices of cold rolled steel over 400$/mt FOB Eregli level for the first quarter of 2003, enabling the steel producer to make a further increase of around 20% for the second quarter. And recent export bookings for the second quarter of 2004 made in past few weeks report export price of cold rolled coil as $630/mt FOB Eregli. The issue which worries steel producers and users most nowadays is that how long these price increases, seen in all types of products for over a year, can last? Of course, price increases have to stop and one day start to fall as a fixed rule of markets. However, it must be noted that those increases have a major difference compared to the ones experienced two times in the last ten years, as a result of speculative purchases. It must be taken into consideration that latest price increases applied both on raw materials and products are supported by the demand and for this reason they are much healthier. Another perspective is that for over ten years steel prices have been at lower levels than they had to be and yet have reached to their real levels. Time will reveal the accuracy of this perspective. In conclusion, increases in the basic industry, steel industry, should be reflected to its end product consumers. As we have mentioned before, certain market corrections in the international markets are inevitable. Whacked markets have to slow down periodically and may soften a bit. But, taking market dynamics into consideration, it should be underlined that going back to the price levels of 2002 is not possible in short and mid term. It is now a fact that new price ranges for the steel prices to go up and down has formed.