High Production Costs and Weak Demand Impact Turkish HRC Producers
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Market Overview:
High Production Costs: In Turkey, the cost of producing hot-rolled coil (HRC) remains high, which is expected to prevent further declines in domestic prices as mills are operating near break-even levels.
Cost Breakdown: The average cost of producing HRC using electric arc furnaces (EAF), which account for 72% of Turkey's steel production, is estimated at $590 per ton. Costs for plate mills are around $70-80 per ton, and producing HRC via blast furnaces costs approximately $540 per ton.
Current Market Conditions:
Price Decline: As of June 28, domestic HRC prices in Turkey have fallen by $115 per ton this year, reaching $595 per ton ex-works. This decline is driven by ample supply from domestic producers and importers amidst sluggish demand.
Stable Price Range: Market sources agree that prices will likely fluctuate within a narrow range due to high production costs and slow demand, with ex-works prices remaining around $600 per ton in June.
Market Dynamics and Challenges:
Weak Demand: Prolonged weak demand has weakened the bargaining power of mills. Some producers are willing to consider bulk orders even at ex-works prices below $600 per ton. One mill has offered prices as low as $580 per ton ex-works, which might result in a loss, especially if producing HRC from scrap, which cost $378.50-391.50 per ton from April to June.
Import Strategies: Some mills might be importing sanctioned slabs to supplement EAF production. However, with current slab prices from the Black Sea and including domestic transportation, production from Russian slabs would cost around $580 per ton, leaving limited profit margins.
Oversight and Export Limitations: Increased scrutiny of the use of Russian slabs reduces export opportunities for mills using this material.
Production Adjustments:
Production Cuts: As Turkish mills approach ex-works prices of $580-590 per ton, discussions about further production cuts to balance supply and demand have intensified. During the holiday period, one producer decided to shut down a slab reheating furnace, reducing their flat steel output by 30%.
Outlook:
Tight Margins: The weak demand is expected to continue squeezing or even eliminating profit margins for Turkish HRC producers in the near term. The ongoing struggle to secure orders suggests that the industry's financial challenges will persist.
Conclusion:
Turkish HRC producers face significant challenges due to high production costs and weak demand, leading to minimal profit margins and potential losses. The industry's ability to stabilize and recover will depend on balancing production with market demand and navigating the complex dynamics of international steel trade.
Market Overview:
High Production Costs: In Turkey, the cost of producing hot-rolled coil (HRC) remains high, which is expected to prevent further declines in domestic prices as mills are operating near break-even levels.
Cost Breakdown: The average cost of producing HRC using electric arc furnaces (EAF), which account for 72% of Turkey's steel production, is estimated at $590 per ton. Costs for plate mills are around $70-80 per ton, and producing HRC via blast furnaces costs approximately $540 per ton.
Current Market Conditions:
Price Decline: As of June 28, domestic HRC prices in Turkey have fallen by $115 per ton this year, reaching $595 per ton ex-works. This decline is driven by ample supply from domestic producers and importers amidst sluggish demand.
Stable Price Range: Market sources agree that prices will likely fluctuate within a narrow range due to high production costs and slow demand, with ex-works prices remaining around $600 per ton in June.
Market Dynamics and Challenges:
Weak Demand: Prolonged weak demand has weakened the bargaining power of mills. Some producers are willing to consider bulk orders even at ex-works prices below $600 per ton. One mill has offered prices as low as $580 per ton ex-works, which might result in a loss, especially if producing HRC from scrap, which cost $378.50-391.50 per ton from April to June.
Import Strategies: Some mills might be importing sanctioned slabs to supplement EAF production. However, with current slab prices from the Black Sea and including domestic transportation, production from Russian slabs would cost around $580 per ton, leaving limited profit margins.
Oversight and Export Limitations: Increased scrutiny of the use of Russian slabs reduces export opportunities for mills using this material.
Production Adjustments:
Production Cuts: As Turkish mills approach ex-works prices of $580-590 per ton, discussions about further production cuts to balance supply and demand have intensified. During the holiday period, one producer decided to shut down a slab reheating furnace, reducing their flat steel output by 30%.
Outlook:
Tight Margins: The weak demand is expected to continue squeezing or even eliminating profit margins for Turkish HRC producers in the near term. The ongoing struggle to secure orders suggests that the industry's financial challenges will persist.
Conclusion:
Turkish HRC producers face significant challenges due to high production costs and weak demand, leading to minimal profit margins and potential losses. The industry's ability to stabilize and recover will depend on balancing production with market demand and navigating the complex dynamics of international steel trade.
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