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this will provide the industry with a stable Turkey – on its way to the Top Ten and secure demand for different products. These expectations for stability are obviously shared by the government itself, With crude steel output up 11% yoy in 2006 at 23.3Mt, and plans to move which sees no reason why the country from a mainly long products producer to flats by 2010 with proposals to should not perform well in the coming years. The official forecast extracted from add nearly 18Mt of new flats capacity – partly as joint ventures – Turkey the SPO’s Ninth Development Plan 2007- will rank as one of the top ten steel producers worldwide with capacity to 2013 places Turkey as the 17th biggest economy in the world by the end of that add export of flat products to its existing longs. period, with an average GDP growth of 7% BY ALFONSO TEJERINA, MARIE VERPILLEUX, MUNGO SMITH* and a GDP per capita surpassing $10 000 (currently, it lies just under $6000, according to IMF data). However, the improving economy at home and domestic demand do not suffice to explain the industry’s rates of growth. The sector displays a significant surplus of long products, as Cemalettin Damlaci, Director General of the Undersecretariat for Foreign Trade, explains: “The imbalanced structure of production and demand results in a lack of flat-rolled products, met with excessive amounts of imports, and a surplus of long products that we attempt to reduce by export”. This means millions of tonnes of long products for the international markets, and it is here where Turkey’s geographical location between Europe, Asia and Africa Source: Turkish Iron and Steel Producers Association pays off. The country is indeed in a perfect position to supply the steel that the neighbouring economies, such as the he history of the Turkish steel enough, consolidation is a phenomenon booming United Arab Emirates, need. industry dates back to the that does not seem to take off in Turkey, With shipping costs increasing fast, foundation of the modern where the sector still consists for the large customers asking for shorter delivery times TRepublic in 1923. With the part of family-run minimills. and China flooding the Far East with its collaboration of foreign With regards to the increasing demand, cheaper steel products, the shift towards academics, the Ministry of Economy Turkey’s steel consumption per capita has Europe, the Middle East, North Africa and started feasibility studies in 1925 and, more than doubled since the 2001 crisis, the CIS countries is the natural move for twelve years later, the first integrated iron when the figure displayed a poor 137kg per Turkish steel exporters. and steel plant in the country was built in capita per year. As a result of the Karabük, near the Black Sea. Since then, accumulated needs from the recession ENTERING A NEW PHASE the country has gone through challenging period, consumption per capita reached Up until now, the history of the Turkish times, including military coups and deep 300kg in 2006, and the estimations for 2007 steel industry could be divided in two main economic crises. Yet, the fact remains that are for 330kg. Halil Ibrahim Akça, Deputy periods, with the 1980s being the turning by the close of 2007, Turkey sits Undersecretary of Turkey’s State Planning point. Before that decade, the three state- comfortably as the 11th largest steel- Organisation (SPO), explains: “The owned integrated plants (Erdemir, Isdemir producing nation in the world (it ranked construction sector grew at an average and Kardemir) controlled most of the 17th in 2000), and its industry continues to 20.5% during the period 2005-2006 and is domestic production, which was all sold grow fast. In 2006, among the top 15 steel expected to maintain this positive trend, within Turkey. Then Turgut Özal, the producers, only China and India thanks to the implementation of the new economic supremo under the 1980-83 experienced higher growth rates. There is Mortgage Law and the growing Turkish military government and prime minister no doubt that the father of the Republic, population, increasingly concentrated in thereafter, decided to push the Turkish keen industrialist and moderniser Mustafa urban areas”. economy towards privatisations and the Kemal Atatürk, would be proud to see the Indeed, Turkey’s appetite for steel has a international markets by providing Turkish steel sector where it stands today. long way to go. Serdar Koçtürk, general substantial incentives to exporting The reasons for this success are diverse manager of Kibar Foreign Trade and companies. This led to the emergence of and related to both internal and external president of the Istanbul Iron and Steel private run minimills and steel traders who factors. To start with, steel prices have Exporters Association, underlines this began to flourish, to the point that a recently reached historical highs globally, point when he compares Turkey’s quarter of a century later, in 2006, Turkey’s pushing up the revenues of steel consumption per capita figure with South 18 electric arc furnace minimills accounted companies. In Turkey, the ranking of the Korea’s, which is around 1000kg. Although for 73% of the total crude steel production. top industrial enterprises according to their he does not expect his fellow countrymen to Over the years, the impulse provided by production-based sales illustrates this consume that much, he does think that “As private investment has dramatically development: in the list for 2006, made economic development unfolds, Turkey’s improved productivity rates in the sector, public in summer 2007 by the Istanbul demand for steel will be somewhere around traditionally low in state-run integrated Chamber of Industry, there were 21 steel 600kg per capita”. mills. The ongoing negotiations with the companies in the top 100. Of these, two in But for the industry to keep growing, the European Union, plus the demands from three rank better than they did the year economy needs to avoid the cyclical Brussels that all kinds of government before. problems that have traditionally plagued subsidies be cut, have only accentuated this The increase in the price of steel can be the history of the Turkish Republic. The trend. In 1990, the annual crude steel seen as the result of growing demand and political continuity with the re-election of a production per employee was 210t, by 2006 global consolidation. The Arcelor-Mittal majority government is probably a it had climbed to 758t. merger in 2006 and Tata Steel’s takeover of promising sign. As an example, the “Even during the economic crisis, with Corus in 2007 are good examples of the infrastructure projects approved during the real interest rates of 100%, the sector kept increasing M&A activity in the industry at first mandate will be implemented now, investing”, said Bayram Yusuf Aslan, vice-

the international level that has meant that avoiding potential political quarrels, and chairman of Içdas5, and chairman of the fewer, but larger players, hold a tighter * Global Business Reports Turkish Iron and Steel Producers control over prices worldwide. Interestingly Association (TISPA). “The reason for this

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is that Turkish entrepreneurs have always Turkish producers complain about the stabilised at under 10%; a majority had a strong belief in their country”. prices and taxes that apply to their government came to power that, after This belief in the country’s future, electricity consumption, but this is indeed a displaying a good economic record during together with an underlying wish to keep small problem compared to the power its first five-year mandate, earned a second the main steel producers in Turkish hands, generation shortage from which Turkey is one with a landslide election victory in July is well illustrated by the Erdemir Group’s likely to suffer in the near future. In 2007. transfer to Oyak in February 2006. Oyak is addition, a similar problem is likely to apply However, there were fears that the the Turkish army pension fund that to scrap supplies: Turkish production of political battle between the mild Islamists managed to beat such global giants as steel is mainly based on scrap recycling in power and the secularists in the Mittal and Arcelor in the privatisation of rather than iron ore processing and the opposition would end up, again, with some the sector’s most valuable asset, which also country is already the world’s biggest kind of military intervention. The reason includes Isdemir. With this move, and with importer of scrap. The current levels of behind the tense political environment was Kardemir having been privatised in 1995, growth are driving the demand for raw the presidential bid by the Minister of the Turkish steel industry is now 100% materials and that is likely to put pressure Foreign Affairs, Abdullah Gül, whose wife private. on scrap supplies in the future. wears the Muslim head scarf in a country Yet, the transformation does not stop As the Turkish steel industry celebrates where its use is banned in official buildings. here. Despite its growth, as previously the 70th anniversary of its establishment Secularists demonstrated against Gül by mentioned, the Turkish steel industry (Kardemir started producing in 1937), the the hundreds of thousands in Turkey’s main suffers from a pronounced shortage of flat sector appears to be going through a cities, and the opposition party products. “In 2006, only 13.5% of the total defining transformation period, which will representing their fears managed to block production was flat steel, while it is widely lead to a new era in the industry. The extent his election in the courts. To overcome the accepted that in developed steel-producing to which demand for steel products keeps political deadlock, the then prime minister, nations this figure should be around 60%”, increasing – and that Turkish producers can Recep Tayyip Erdog˘an, decided to call an says Veysel Yayan, secretary general of deal with the challenges ahead – will early election, otherwise not due until TISPA. The imports of flat steel to meet the determine whether the target of being November 2007. needs of domestic demand amounted to within the world’s top 10 steel producing Back in November 2002, the Justice and 7.2Mt/y in 2006; although the Turkish steel countries (a dream just a few years ago) Development Party (AKP) had put an end industry is a net exporter in terms of becomes a reality in the medium term. to 15 years of coalition governments by quantity, the total value of its imports is securing 34% of the vote in the elections. higher, which in turn negatively affects the POLITICAL STABILITY FOR GROWTH During its first mandate, the GDP grew by country’s already high current account Until fairly recently, cyclical economy an average 6.9% between 2003 and 2006; deficit. problems, hyperinflation, military inflation was dramatically reduced, and the In order to address this problem, either interventionism in politics country officially opened within the frame of the National and general instability membership negotiations Restructuring Plan of the industry used to be the ingredients with the European Union (submitted by Turkey to the EU with which Turkish in October 2005. Faced Commission in September 2006) or businessmen had to cope, with a divided opposition, independently of it, investments are being the 2001 financial crisis the AKP electoral made to expand Turkey’s flat steel being the most recent machine swept to power production capacity. Isdemir, which is in example. Today, the again in 2007 with 46% of the middle of a massive modernisation picture could not be more the vote. At the end of project, produced its first slabs in late 2006. different. August, one month after In summer 2007, Çolakog˘lu became the While the country’s the elections, Abdullah first minimill to embark on flat production. GDP has been growing Gül was finally elected by Others are following suit, on their own or steadily, inflation has the Parliament as with the help of foreign partners who see President of the Turkish the huge potential that the country offers in Republic. steel high value-added products. Bayram Aslan, president of Although some fret that the Turkish Iron and Steel the Islamists might use LOOKING AT THE FUTURE Producers Association: their powerful position to Despite widespread optimism, some “Even in the economic crisis promote a religious challenges still need to be overcome. the sector kept investing” agenda, others have welcomed the outcome of the elections as a guarantee of economic development for the years to come. Indeed, Turkish businessmen are well aware of the negative effects that weak coalition governments have had on the economy in the past. As Serdar Koçtürk, president of the Istanbul Iron and Steel Exporters Association, puts it: “The political stability and the negotiations with the European Union are helping find more foreign investment; and, as foreign investment grows, the risk of downturns decreases”. Not everything is rosy though. The current account deficit is high ($31.8bn in 2006, and $19.6bn over the first half of 2007), the new Turkish lira suffers from volatility and political instability in neighbouring countries remains a risk. But despite all this, it could be said that the Turkish economy has hardly ever faced a brighter future than today. STI

The Isdemir plant in Iskenderun, SE Turkey has added flat products to its portfolio

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are the first to cast slabs. We want to keep being a pioneer in the Turkish steel industry”. Other companies that process flat products are also investing in larger capacity. Borçelik, a Borusan-Arcelor Mittal joint venture for the production of cold-rolled, galvanised and coated steel, will expand its capacity from 900kt to 1.5Mt/y by the end of 2008 and a 4.8Mt/y hot strip mill will be added by 2010. Russian producer Magnitogorsk (MMK) announced in May 2007 that it was entering Turkey’s flat steel market with the construction of a 2.6Mt/y plant in Iskenderun, in a joint venture with

Turkish industrial group Atakas5. On a smaller scale, Tezcan expects its cold-rolled, galvanised and coated steel plant to be working at full capacity by 2010, therefore reaching 700kt/y of production compared to the current 400kt/y. Also, Tat Metal, so far a steel service centre for flat products located in Ereg˘li, has just put into urkey’s double-digit growth in the Isdemir’s integrated plant at Iskenderun is operation a cold-rolling mill with a capacity steel sector during 2006 and 2007 investing a total of $2.1bn. of 300kt/y, and has commissioned a would be difficult to explain galvanising line for 2008. Twithout the millions of dollars The list does not end there. Kibar is going that local producers are to add 500kt/y of galvanising and coating ploughing into their mills. One visible capacity to its current 200kt/y and the result of these investments is the general Investments holding is also planning a 2Mt/y plant for the increase in capacities but, more production of hot and cold-rolled steel, in a importantly than that, money is being spent joint venture with foreign partners. Sources

in the production of higher value-added from Içdas5, Turkey’s largest minimill, say products, in order to alleviate the country’s galore that the company will start producing flat severe shortage of flat steel. steel to support its shipbuilding activities.

The main transformation project of 2007 And in Samsun, Yes5ilyurt Iron and Steel has is the one radically changing the face of Turkey needs more flat products, confirmed that, separately from its current Isdemir. The integrated plant located in increase in crude steel capacity, the minimill Iskenderun on Turkey’s South East coast, is and investments are being made will invest in the flat business by 2009. reportedly (with the financial backing of to create new production Production of flat steel aside, the term the parent company, Erdemir) investing a ‘value-added’ also includes other business total of $2.1bn and has already started to facilities. On the other hand, long areas. Cer Çelik, another minimill, plans to cast slabs. If everything goes to plan, by producers keep enlarging their enter the high-quality steels market, also 2008-09 its total crude steel output will affected by a shortage of production that is reach 6.2Mt/y, with a slab-casting capacity capacities: minimills are not covered with imports. On the other hand, of 5Mt/y, plus 3.5Mt/y of hot-rolled coils. the energy sector internationally and the Although, in theory, Isdemir’s sales would ‘mini’ anymore. automotive industry in Turkey offer be safe just producing flat steel, the BY ALFONSO TEJERINA, MARIE opportunities that steel pipe manufacturers company is not completely abandoning the VERPILLEUX, MUNGO SMITH* such as Borusan, Noksel and Yücel Boru long steel market, as it has also installed cannot ignore; the latter company also wants two new billet machines. * Global Business Reports to move into the stainless steel business. The enormous investments in As can be seen, the plans for investments ៉52 modernisation are expected to be recovered through a general reduction of costs (for instance, energy efficiency) and a dramatic hike in productivity rates, as the company’s CEO, Ismail Akçakmak, remarks: “In 2006 we were producing 2.2Mt/y with 6100 employees. In the coming two years we will add an extra 4Mt/y, the equivalent of having more than two Isdemirs in the same area; however, the number of employees will not go over 7000”. MINIMILLS WANT THEIR PART With regards to flat production, the other big story of the year is Çolakog˘lu Metalurji. Until now a long product mill with an annual output of 1.7Mt/y, the company is focusing on increasing value rather than just volume. After renewing its melting shop, in the summer of 2007 it became the first minimill in the country to start casting slabs. Ug˘ur Dalbeler, the general manager, explains the rationale behind this move: “We used to be the biggest minimill, but at a certain stage we diversified our activities and put a stress on innovation. Çolakog˘lu was the first minimill to ever install a continuous caster in Turkey, and now we Yucel Boru’s in Gebze plans to expand into stainless steels

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If geographical location is already a plus will need to sell their production overseas”.

for the Turkish industry in general, Yes5ilyurt Yet, Turkish producers generally remain The clients also benefits from being located in Samsun, optimistic about their exporting capabilities on the Black Sea coast, where the company for two main reasons: firstly, Turkey’s

operates its own port. Mr Yes5ilyurt geographical location makes it easier to continued: “One of our key competitive access the Gulf area and European markets; next door advantages is that we are the only crude steel secondly, Turkish steel has a good producer in this region; in Turkey, we target reputation for quality, which still makes a a customer base of millions of people from difference in particular areas. For Sermet Standing at the crossroads of Ankara to the Eastern Black sea. Moreover, Hatunog˘lu, general manager of Kroman due to our closeness to Russia, we can Çelik, “Chinese producers are trying to Europe and Asia – and with import scrap cheaply and be very penetrate the Gulf Region but they are not demand also rising elsewhere – competitive in the Russian merchant bar being very successful because this is a market”. market that presents its own difficulties. For Turkey enjoys a perfect location The markets in the Black Sea are indeed instance, clients ask for material with no doing very well for Turkish steel exporters. traces of rust and, to avoid risks, they prefer to become the emerging During the first half of 2007, exports to to source from Turkish mills”. economies’ steel supplier. Romania and Bulgaria, the last two Moreover, having to compete with a steel BY ALFONSO TEJERINA, MARIE countries to join the European Union, giant is not something new for Turkish increased dramatically compared to the producers, according to Ug˘ur Dalbeler, VERPILLEUX, MUNGO SMITH* same period of 2006 (+249% and +111% in (Çolakog˘lu Metalurji): “Seventeen years terms of volumes, respectively) while ago, in 1990, the world was flooded with exports to Russia rocketed (+523%). Russian and Ukrainian steel – produced However, although these figures are very next door – and that did not prevent us from significant, the main destination markets are becoming the 11th largest steel producer in still to be found in Western Europe and the the world. Today, we face Chinese Middle East, the number one consumer competition, but I see it as a tsunami: it being the United Arab Emirates, with floods the markets near China first but, as it 1.5Mt/y of Turkish steel purchased during tries to reach our neighbouring countries, the first half of 2007. the intensity of the wave decreases”.” In order to serve the Gulf area more quickly and at lower cost, Turkish crude ADAPTING TO A DIFFERENT MARKET producers and re-rollers are increasingly With the exporting experience acquired establishing factories in the booming over the last three decades, flexible Turkish industrial area of Iskenderun, on the producers and traders have learnt to react Mediterranean’s south eastern coast. against global competitors by redefining Companies there are investing heavily in the their areas of influence and adding value acquisition of land to expand capacity and to and quality. In a global and dynamic build port infrastructure, predicting that market, China might be the biggest demand will keep growing and that the challenge, but it is not the only one. transformation of Isdemir (Iskenderun’s Diler Foreign Trade, the company that steel integrated plant) into a flat producer tops the table of Turkey’s steel exporters, will therefore create enormous business knows this very well. It sells 1.7Mt/y of steel opportunities for long-steel minimills. annually to international markets, Necdet Yesilyurt, board member of 5 supported by the production of Diler Yesilyurt Iron and Steel: “Nowadays 5 SURVIVING THE CHINESE TSUNAMI Holding’s two minimills (Yazici Iron and Turkish producers are strong in When asked about international Steel and Diler Iron and Steel). For its neighbouring countries…” competition, China is on everyone’s lips. Its general manager, Celal Özgündog˘an, the production grew by an accumulative 54.6% strategies to compete in the international t might sound like a paradox but, as during the period 2005-06, reaching 419Mt/y arena have to be tailored to the needs of globalisation has virtually reached every of crude steel in 2006; estimations for the each market: “We sell to any country in the corner of the world, the Turkish steel end of 2007 put Chinese production at world that offers good business Isector has progressively focused its 483Mt based on 9 months. As has happened opportunities. Competitors are divers, it is exports towards its neighbouring in other industrial areas, such as textiles, not just about China”. countries. Chinese growth in the steel sector has “Our main challenges at the moment are Several reasons help explain this shaken the market globally and Turkey has local mills in the destination markets, regionalisation. First, production from China not been spared the effects, as shown by the overcapacities, anti-dumping procedures, has been growing at enormous rates, increasing currently negligible Turkish sales figures to some globally competing nations and freight the competition in east Asia and North the Far East. These accounted for just 0.5% rates”, Mr Özgündog˘an explained, while America. Secondly, the demand for steel of the total steel exports in 2006, whereas noting, on the positive side, that “We are products in North Africa, the Middle East and they had accounted for 70% in 1990. witnessing historical levels of consumption the CIS countries is dramatically increasing. Today, Chinese mills are also competing of reinforcing bars in many areas of the Last, but not least, shipping costs are in the Middle East and Europe, with price as world. The construction sector in developing significantly higher than they used to be. the main advantage. countries, as well as in petrol-rich nations, is In this context, Turkish mills are taking According to Veysel Yayan, secretary booming, and this gives us enormous advantage of their geographical location to general of the Turkish Iron and Steel opportunities for the near future.” become the supplier of choice to the Producers Association: “Price differences in Opportunities that Turkish exporters are

surrounding nations. Necdet Yes5ilyurt, the Gulf region between Chinese and not ignoring, according to the Iron and

member of the board of Yes5ilyurt Iron and Turkish products reached $100/t in Q1 2007 Steel Exporters Association: sales of Steel, commented on this trend: and, when a certain level of price difference Turkish steel overseas grew by 14% in terms “Nowadays, Turkish producers are strong is attained, clients start to buy Chinese steel. of quantity and 48% in terms of value in neighbouring countries. We have Step by step, we have lost markets in the during the first half of 2007 (year-on-year). adapted to the increasing Chinese Gulf, the United States and Europe, where Bar is, by far, the best-selling product, with competition by finding new markets in our wire-rod exports have been much 4.6Mt/y dispatched during the same period. Southern and Eastern Europe, North affected”. With the investments that are being made to

Africa, the Middle East and, in Yes5ilyurt’s Murat Talu, Deputy General Manager of expand mill capacity, the Turkish steel case, the Black Sea region, where we sell Cer Çelik, forecast that “after the 2008 sector is expected to maintain its position as 60% of our total exports”. Olympic Games, Chinese domestic demand a strong exporter of long products and to will diminish and this will increase increase its share in the country’s total * Global Business Reports international competition as Chinese mills exports (7% in 2006) in the years to come. STI

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TURKEY Consolidation: The game has just started The Turkish steel industry remains family-oriented and, therefore, very fragmented although the arrival of foreign investors is already bringing winds of change. BY ALFONSO TEJERINA, MARIE VERPILLEUX, MUNGO SMITH*

deterrent for consolidation. Indeed, why Enterprise Group, which included Diler,

should a producer welcome a rival family Kibar and Içdas5, among others. Although on its board if the business is doing very Erdemir would end up in Oyak’s hands (the well as it stands? According to some, only a Turkish army pension fund), the first crisis would provoke such a change in this serious cooperation effort among Turkish scenario. steel producers had already taken place. “Consolidation might happen in the However, the efforts that are currently future but it will take some time”, says Mr crystallising are those partnerships between Özgündog˘an (Diler Foreign Trade). Turkish and foreign players, a trend that “Maybe the next generation will be keener looks set to continue. Borçelik, a Borusan- on mergers than that running the Arcelor joint venture, is reportedly in companies now but, at the moment, family discussions for the opening of a hot-rolled businesses do not want to sell their steel production facility. Russia’s MMK will companies”. set up a flat steel plant in Iskenderun in

However, as the country’s economy and cooperation with Turkish group Atakas5. steel industry grow, foreign players are Kibar is also working with foreign partners increasingly knocking at Turkey’s door, in its 2Mt/y project for flat steel on the bringing in changes more quickly than Black Sea coast. Finally, Arcelor Mittal expected, in a process that seems announced in September that it is acquiring irreversible. a controlling stake in Turkish distributor Kemal Saraç, general manager of steel pipe Rozak. manufacturer Yücel Boru. WELCOME TO TURKEY Although the trends are currently he steel sector in Turkey consists Inflows of foreign direct investment (FDI) favourable to these kinds of moves, of three integrated plants and 18 into Turkey are booming. While these only industry players need to study carefully the electric arc furnace (EAF) mills. amounted to $2.9bn in 2004, they rose implications of such ventures and assess the TOf these, many are family-owned dramatically in 2006 to $19.8bn; potential benefits: “Apart from the or family-run companies, with estimations for 2007 are around $30bn. financial support, a partnership should capacities varying from 200kt/y to 3.5Mt/y – Alpaslan Korkmaz, president of the result in a valuable relationship in which very small compared to some global giants. country’s Investment Support and there is a transfer of technology and know- Although flexibility is always an advantage, Promotion Agency, says that, “Turkey is the how”, says Kemal Saraç, general manager size does matter in the international land of opportunities” and summarised of steel pipe manufacturer Yücel Boru. market; some voices warn that some of its more attractive points for “And the most important thing is the consolidation will need to take place in the foreign investors: “We have a dynamic and possibility of reaching new markets”. near future if the industry wants to young domestic market of 72 million In Turkey, these synergistic relationships maintain its current momentum. people; a qualified and cost-effective are translating into the arrival of capital

As Sabri Keles5 (Nursan) put it: “In labour-force; a liberal investment climate; and technology for the production of flat general, family businesses in Turkey are not and we are an official candidate to join the steel into a market that is extremely hungry very keen on opening the door to other EU”. for it. These are also putting foreign players. There is not a consolidation With regards to the steel sector, the companies in a privileged position to export culture such as exists in other countries – at severe shortage of flat products in the higher value-added products out of Turkey least – not yet”. For Çetin Kaya, general country acts as the main magnet for foreign presuming that the local market stabilises manager of Ekinciler, “There are too many players. Back in 2005 and prior to merging, in the medium-term. In today’s booming producers. A Turkish steel industry with six both Arcelor and Mittal launched bids to environment, some minimills prefer to stay to eight players would be much more take over the Erdemir Group in the out of the consolidation game and are competitive in the international arena”. privatisation process, as did Russian doing very well on their own. It will be Apart from the cultural factor, the investors including Severstal. To compete interesting though to see how they react in current industry growth also acts as a with these giants, the Turkish steel industry a few years time when international M&A * Global Business Reports had to join forces under the Ereg˘li Joint activity has developed further. STI

48៉Investments galore... 500kt/y arc furnace into operation in 2005. As is shown by Nursan’s case, Turkey’s are endless, but growth might not be. This Within months, capacity was expanded to surplus of long products does not deter is why some voices in the industry warn that 800kt/t and, between 2005 and 2006, the minimills from acquiring larger capacities. not all these projects will be realised if company climbed 46 positions in the list of Also in Iskenderun, Ekinciler is planning to growth slows down. However, in the Turkey’s top industrial companies (from expand its plant from 1Mt/y to 3Mt/y. hypothetical event that the Turkish flat 129th to 83rd). Now, it is finishing the Another producer Kroman Çelik, located steel market became saturated, there is building of its own port and its capacity will in Gebze near Istanbul, is doubling its always a plan B, from which long steel peak at 1.1Mt/y in 2008. capacity with a new arc furnace, to reach

producers have been benefiting since the Nursan’s general manager, Sabri Keles5, 2.3Mt/y of crude steel. Diler will start 1980s: the export market. explains how the company’s aggressive producing 500kt/y of wire rod in mid-2008 - investments are paying off: “Before we and these are just some of the more NOT JUST FLATS established our own melting shop, we significant examples. Whereas flat steel production is only now were very limited in terms of quality since Turkey’s steel sector is going through an starting to take off, for decades the bulk of we didn’t have our own steel billets. We investment boom. For some, this is merely investment has been made into the long used to buy them from Isdemir and a result of the euphoria from the last two steel business, with minimills driving growth overseas suppliers, but this was not an years. However, others believe there are no in the Turkish steel sector. ideal situation for us. Now, we are in a apparent reasons for a slowdown in the Perhaps one of the best examples of this is much better position and, as a result, our short term. Only the next few years will Nursan, a producer located in Iskenderun sales of reinforcing bars have quadrupled dictate if demand is able to absorb so many that has grown tremendously since it put a in two years”. investments. STI

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TURKEY Changes coming to Kardemir?

Karabuk Demir Celik San ve Tic (more commonly known as Kardemir) is an integrated long steel producer located in Karabuk, a town in northern Turkey about 100km south of the Black Sea coast. Kardemir is the smallest of Turkey’s three integrated steel producers the other being Erdemir and its subsidiary Isdemir. GORDON FELLER

ounded in 1937, Kardemir was the Kardemir’s 3200 blue-collar workers are the Yolbulan family – 34% of its first steel production facility in represented by Celik-Is Union which shareholding. Turkey and, following long periods negotiated a 12% wage increase to Fof losses and underinvestment, the December 2008. NEW BLAST FURNACE CAPACITY – government privatised the company OR IS IT? in 1995 by transferring its ownership to its INCREASED CAPABILITY employees at no cost. Due to Using blast furnaces, Kardemir produces Kardemir recently signed a $37.2M mismanagement during that period of billet and bloom out of iron ore and coking contract with QMMC, a Chinese employee ownership plus some difficult coal (Table 1). Most of the billet is sold metallurgical equipment manufacturer, to steel market conditions, the company has directly to customers (re-rollers) while build a fourth blast furnace while subsequently been in financial difficulties bloom (and some billet) is further upgrading existing ones. These two several times since. Its payables (most of processed and rolled into rebar, profiles or together, by Q3 2008, will enable Kardemir which were to state-owned entities) and its rail. Currently, the vast majority of the to increase its liquid steel capacity to banking debt were restructured in 2003, company’s sales is to the domestic market. approximately 2Mt/y (from the current preventing the company’s bankruptcy. Modernisation of the hot rolling mills, 1Mt/y). The new blast furnace will have a Its steel business has become more sound Kardemir’s first major investment of recent capacity of just 500kt/y; the rest of the since 2004, partly due to the positive impact years, was completed in 2005. The project planned increase will be obtained by of the Yolbulan family increasing its cost US$24M but has enabled the company upgrading the existing three blast furnaces. shareholding; in addition, the Yolbulans’ to process larger billet, up to 150mm However, some analysts are unhappy active interest in the management has square. Also completed in 2005 – at a cost with the figures saying that 1Mt/y of helped the company get in much better of $4.58M – was a gas recovery system to greenfield blast furnace capacity would cost shape and allowed it to access much needed increase energy efficiency. around US$700M; some now suspect that investment. The company’s hot rolling capacity one or more of Kardemir’s blast furnaces Planned or soon-to-be-completed increased from 900kt/y to 1.3Mt/y in Q2 have not been operational for some time increases in capacity should prove timely if 2007 with the commissioning of a 400kt/y and that the company is merely having this the general profitability of the steel rail/section mill. With this, it can start non-operational – and unquoted – capacity industry continues. However, its relatively producing longer types of rail (up to 72m in restored. small size, inland location and inefficient length) and wider profiles (up to 550mm in The company says it plans to use its ownership and management structure width). The company will be the only such increased liquid steel capacity for bloom continue to present major risks. The producer of long rail sections in the region. and billet production, some to be used in Yolbulan family, whose re-rolling company A $3.57M vacuum degassing station rail production. Excess billet production, is almost certainly Kardemir’s largest required for the new rail/section mill has set to appear in Q3 2008 when the capacity customer, continues to significantly also been completed. increases are complete, will be sold to local outweigh the influence of minority In total, the new rail mill will have cost re-rollers. It also had plans to build a $11M shareholders. $57M and the company has secured a 12- electric arc furnace and a supporting Kardemir holds 100% stakes in each year $35.7M credit facility from HSH $20.5M electric transformer station; Karcel Karabuk Celik Yapi (steel Nordbank through Asya Bank; because the however, theses plans have now been construction and assembly) and Kardemir company’s unsound financial condition, it dropped due to the problems arising with Dokum Makina (steel casting) whose was required to get shareholders’ backing. the Turkish electric grid operator (TEIAS). financials are fully consolidated into its Consequently, in April 2005, Kardemir If Kardemir can bring proposed new own. In addition, it holds a 49% stake in shareholders were asked to voluntarily capacity on line in time and keep its Karcimsa, a small cement producer. pledge some shares to Asya Bank in order financials on a more even keel, the high Further holdings include a 10% stake in to secure the loan. In return, Kardemir worldwide demand for steel products Erdemir Madencilik Sanayi (a small iron offered subscribing shareholders ‘priority (especially from China) provides its best ore producer controlled by Erdemir customer status’ for purchasing its opportunity to establish itself not just as a providing part of Kardemir’s iron ore products. In total, 46 Kardemir still-significant Turkish steel company, but need), a 95% stake in Kardemir Sigorta shareholders subscribed to the offer, also to move onto the world steel market Aracilik Hizmetleri and 99% of Kardemir pledging 56.1M shares (10.2%) to Asya stage, taking its place alongside Erdemir Filyos Liman Sanayi, (both at book value). Bank as collateral; 11% of those came from and Isdemir. STI

(at year-end) 2001 2002 2003 2004 2005

No of employees 4344 3919 4098 3997 3460 Production (kt/y) Liquid Steel 727 542 809 801 973 CC ratio (liq steel - %) 74 57 81 80 97 Billet 597 536 665 641 767 Bloom 130 30 143 155 198 Finished product 446 202 374 323 318 Total sales (kt/y) 751 549 799 806 922 Pig Iron 12 1 21 37 49 Billet 360 348 414 450 576 Rebar 333 183 305 246 227 Rail & Profile 46 17 59 73 70 (Source: Kardemir) Table 1 Employment, production and sales of Kardemir

53 Steel Times International November/December 2007