turkey intro 7/11/07 08:33 Page 1 TURKEY 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 45 Steel Times International November/December 2007 turkey intro 7/11/07 08:34 Page 2 TURKEY 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.