The Turkish metals industry is faced with a difficult 2009 due to a steep decline in demand from key export markets such as the Arabian Gulf - as well as the volatile exchange rate - but BMI's Turkey Metals Report predicts a strong recovery from 2010. Export market diversification, increased flexibility and efficiency and the changes made to the economy and financial system since the 2001 crisis will ensure that the Turkish steel industry will continue to thrive after the economic crisis has abated. In 2008, Turkey's crude steel production rose 4.1% year-on-year (y-o-y) to 26.8mn tonnes, but was down 17.2% y-o-y in December. Longs production rose 3.3% in 2008, largely due to domestic demand. In 2008, Turkey exported 10.45mn tonnes of rebar (up 20% y-o-y) and 2.43mn tonnes of billet (up 60%). Wire rod and profiles exports rose 26% and 13% respectively. By Q109, the industry was seeing a difference in performance between products, with section steel seeing little improvement in demand despite decreases in prices. A major risk factor for the Turkish metals industry is the excessively volatile exchange rate, which is making it hard for producers to plan costs. By March 2009, the Turkish lira was trading at an historic low of TRY1.82:US$, thereby pushing up the costs of imports, particularly imports of aluminium ingots on which Turkey is heavily dependent. Turkey increased import duty on steel products from the beginning of 2009, although the duties do not apply to imports from the EU, which are imported duty free under the terms of Turkey's free trade agreement with the EU. The effect was immediate, with new import transactions grinding to a halt as the Turkish market sought domestic sources. In longs production, which mainly consists of wire rod and heavy sections, prices were showing signs of stabilising, suggesting that the market had reached the bottom. In terms of exports in 2008, the UAE was Turkey's largest steel export market, accounting for 50.4% of rebar exports and 13.8% of billet exports. Demand from the UAE has grown as a result of the country's massive construction programme. The Arabian Gulf accounts for the Turkish steel industry's largest regional market, representing nearly three-quarters of rebar exports and just under half of billet exports. However, by Q109 demand from the UAE witnessed a steep decline as construction activity in the country ground to a halt amid fears of recession. BMI forecasts a 13.2% y-o-y drop in steel output to 22.92mn tonnes, with a steady improvement in H209 leading to a full recovery in 2010. The decline in primary aluminium production is not expected to be as steep, with the country's sole 60,000 tonnes per annum (tpa) Seydisehir smelter - which has been operating at maximum capacity over the past five years - unable to fulfil all the country's aluminium requirements, although it will face increased competition from remelters. We believe that Turkey is in a better position than many other steel-producing countries and can likely expect a recovery in line with the recovery in markets in the Gulf, in addition to the successful efforts to diversify markets. In 2009, exports are expected to fall by around 16% to 15.34mn tonnes, but will recover strongly as Turkey makes the most of its access to markets in both Europe and the Middle East and the expected recovery in construction activity. In terms of profile exports Algeria was the largest market, representing 12%, followed by Iraq and Syria. The USA was the largest export market for Turkish wire rod, representing nearly a third of the total, followed by Italy and Israel.
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