FOCUS: Turkish steel mills should avoid price hikes following US import tariff cut, traders say

The United States’ reduction of tariffs on Turkish steel imports to 25% from 50% last week will only partially reopen the US market to Turkish mills, who should avoid raising prices if they are to successfully regain a share in that market, several sources told Fastmarkets this week.

The US has lowered its tariffs on steel imports from Turkey to 25% effective Friday May 17. Duties had been at 50% since August 2018.
The announcement caused optimism in the Turkish steel market, because US had been one of Turkey’s biggest export markets before the 50% duties were introduced.
Steel prices have been increasing in the country since then. Domestic offers for hot-rolled coil in Turkey are now $530 per tonne ex-works, up from $505-520 per tonne ex-works on May 23. 
And hot-dipped galvanized coil (HDG) offers in Turkey rose to $685-700 per tonne ex-works on May 23 from $650-670 per tonne ex-works on May 17.
Market sources said they expect prices for other Turkish steel products, such as HRC and rebar, to also rise as a result of the reduced import tariff.
But some market sources spoken to by Fastmarkets have expressed concern that Turkish steel mills may raise their sales prices too quickly, which could offset the benefit of resumed exports to the US.
A Turkish flat steel trader said Turkish producers need to avoid sudden price hikes because the US is not a very big market for Turkish material now, but Europe is.
“If producers increase prices too much, European buyers may prefer Indian or other origin flat steel,” he said.
European market participants, meanwhile, said the tariff cut could mean Turkish steel originally destined for the European Union could now be diverted to the US, easing supply concerns there.
“I hope it will help to reduce import flow [of HRC] to Europe. It will depend on domestic prices in both US and EU, but the change still seems to be positive for the European mills,” a Northern European trader said.
“At this point it is too early to say what will be the immediate effect, as now import prices [mainly from Turkey] are too high for the EU. But hopefully it will ease the pressure from Turkish import in Europe,” an Italian source said.
Can Turkey regain market share in the US?
Turkey's steel product shipments to the US totaled 120,948 tonnes in September 2018 but plummeted by 49.2% the following month to 61,471 tonnes.
Exports to the US hit at least a 12-month low of 10,751 tonnes in April this year, rebounding somewhat this month to 32,839 tonnes as of May 14, license data from the Commerce Department's Enforcement and Compliance division shows.
The rebound was attributed to a Turkish delivery bound for the US that had been held in port since August 2018, waiting out the tariff increase and eventually shipped at a loss after the supplier could not wait any longer.
However, weak demand in Turkey’s domestic market is still a major factor affecting steel production. Turkey’s political imbalance remains a very serious factor in today’s ferrous world.
"As long as the current leadership remains in power, we may not see the end of political-related economic risks coming from the country,” Hartree Partners ferrous scrap trader Nathan Fruchter said, adding that Turkey’s detention of a US pastor and its determination to purchase Russian missiles caused political rift with the US to worsen.

Cem Turken

cturken@fastmarkets.com

Serife Durmus

sdurmus@fastmarkets.com

Maria Tanatar

maria.tanatar@fastmarkets.com

Viral Shah

viral.shah@fastmarkets.com

Marina Shulga

marina.shulga@fastmarkets.com

Published

Cem Turken

Serife Durmus

Maria Tanatar

Viral Shah

Marina Shulga

May 23, 2019

15:51 GMT

Bursa, London