2009 has been a very hard year for the steel industry and steelmakers worldwide. High costs resulted from high priced raw materials and high stock levels of high contractual and spot priced raw materials from the previous year. Costs of goods sold remained at very high levels. Furthermore, dramatically low  product prices caused much lower profits, even losses, shutdowns, production cuts and job losses in the steel industry.

Spot coking coal prices could rise 25 percent to $200/mt FOB in 2010, if China continues to import at the current rate, because of logistical bottlenecks, analysts say. Chinese steel plants, particularly the large new plants in the coastal regions, are seeking higher quality imported coking coal, according to supplier BHP Billiton.

Indian traders are seeking coking coal and Indian producers have said all indications point to a supply squeeze which will propel prices higher to $180-$200/mt in 2010.

Iron ore, coking coal, steel scrap and also freight rates will affect steel costs, and, accordingly, the steel markets. We expect steel costs will be higher or continue to remain high, especially at integrated steel plants, and that prices will not rise as much as costs. In spite of production cuts worldwide and price reductions, steel demand is still not sufficient.

The Far East and China have been buying steel scrap for a while now. Turkish steelmakers prefer not to change their position, since sales and exports are still weak. The latest transactions have been concluded at $320-330/mt CIF. European sellers request $350 for HMS 80/20; however, Turkish buyers have been avoid purchases and have tended to keep their stocks at minimum levels. Average stock costs, export demand and domestic sales will be important for production and price strategies in the upcoming weeks and months.

Some European scrap suppliers have sold out until March because of shortages of collecting materials resulting from difficult winter conditions and low prices. The shortage of scrap in Europe and high demand from the Far East and China, as well as anticipated weak demand for finished products, could push Turkish buyers into a difficult position as they will have to decide whether or not to buy at high prices and whether they will continue to produce at high cost.

As far as the steel market is concerned, the situation depends very much on the improvement in the economy in general, both in Turkey and in Europe. If these economies improve, demand for steel will also improve. If they do not show significant improvement, demand for steel will remain limited.  Therefore, demand for raw materials and relative prices will depend more on availability than on overall worldwide demand for steel.

In Turkey, exports of long products has been weakening and could get weaker as Saudi Arabia and Iran, which are Turkeys  target markets, have been investing to expand their crude steel and rolling mill capacities. 

On the other hand, Turkey could target the whole of Africa as a virgin market from now on. Turkeys production of long products is still too high. New investments focus should be on squares, flat bars, molding bars as well as on sheets.

The margin between billets and longs is very narrow at 10  percent, having previously been at 20 -30 percent until this year. Since there are too many rolling mills in Turkey, there has been a billet shortage and a long products surplus in the local market.

However, there are many factors affecting prices and competition, such as;

1. Exchange rates

EUR/USD and USD/ TRL rates will definitely affect Turkish steel market and prices. If the EUR/USD rate goes down (we expect between 1.36-1.47 in the near future) this will strengthen Turkish exports. As Turkey imports steel scrap mostly from Europe on EUR basis and sells products to the Middle East, Far East and the US on USD basis. If the USD becomes stronger against the EUR and TRL, this will also affect domestic prices and push them higher.

2. Domestic and foreign steel demand

Turkey has always been a steel producing country which has produced more than its consumes. Turkey has to export its production and manage its product range wisely.

3. Target markets, countries and their economies

Export target countries and their economies should be strong. Customers should be able to keep purchasing and paying on time. Also, if these countries decide to make new investments or expand their current capacities in this sector, this will negatively effect Turkeys steel exports.

4. Competitors and competitor countries

Turkish steelmakers should monitor competitor steelmakers, their position, their advantages and disadvantages, costs, profit policies, and tax regulations. They should understand competitors strategies, policies and circumstances, and then act wisely. Russia, Ukraine and other CIS countries can aggressively sell their stocks or production ignoring any rules.

5. Raw materials shortage and suppliers policies such as cutting production and monopoly on contractual terms and prices

Availability and prices of steel raw materials will be the dominant factor for the steel sector in the future. Shortages of raw materials, difficulties in the mining sector, seasonal factors such as harsh winter conditions and suppliers policies will affect contract and spot prices.

6. Quality of materials, service and reputation of the steelmakers on both customers and suppliers sides.

Turkish steelmakers should assure the quality of their products and follow up customers needs , expectations and service requirements. Sellers should fulfill their contractual obligations on both sales and purchases - this is another important point in order to build an international reputation.

7. Product Range

Turkey mainly produce round bars. Round bars are oversupplied. Turkey needs to change some portion of its steel production by transforming to different product ranges such as squares, angles, flat bars, molding bars, some special profiles and some other value-added products.

8. Turkish steelmakers should consider research and development on products and customer basis to keep available customers and obtain potential customers. They need to make innovation in a timely manner.

9. Turkish steel companies are mainly family owned companies. They need to be more corporate to compete in global markets and to make innovations. They need to become public open companies by offering shares on the stock exchange to be more transparent, more flexible and institutional.

10. Marketing ability

Turkish steelmakers should improve their marketing ability and research in available and potential markets. Country and customers analysis, competitors, advantages and disadvantages could be evaluated carefully.

We could see more shutdowns, bankruptcies, mergers, changes in capacities and product ranges in the worlds steel industry in 2010.  Raw material prices will likely stay strong this year. We could expect less plants, fewer owners in this sector.