Recapping the critical market intelligence

from our December conference in Dubai

Fastmarkets’ Middle EastIron and Steel 2019

Fastmarkets 2December 2019

Global trade’s main problem is a lack of fair play rather than a lack of fair trade, Ugur Dalbeler, a board member of the Turkish Iron & Steel Producers’ Association (TÇÜD), said during his presentation at Fastmarkets’ Middle East Iron and Steel Conference in Dubai.

Several countries and regions are bypassing the World Trade Organization’s (WTO) regulations, Dalbeler - also the chief executive officer of Turkish steelmaker Coakoglu - noted.

The WTO has lost its ability to function properly and many decisions against its rules have been taken recently, Dalbeler said, adding that steel market participants should ask for “fair play” before “fair trade.”

The WTO was forced to suspend its dispute resolution process earlier this month due to a lack of judges on its appeals body - two retired last week but the US has for the past two years blocked any further appointments.

The impartial appellate body requires a minimum of three judges out of the seven judges that the intended to form the panel to rule on any appeal. But last week’s retirements leave just one judge in place, plunging it into crisis.

EuropeTurkey signed an agreement with European Coal and Steel Community in 1996 that abolished duties between the two parties, Dalbeler said. From then until 2017, European exports to Turkey were significantly higher than Turkish exports to the European Union.

“Over the last 20 years, the EU has shipped 53 million tonnes of flat steel to Turkey, while Turkey has shipped 16 million tonnes to the EU,” Dalbeler pointed out.

But the European Commission (EC) started to impose new duties and quotas when Turkish steel exports to the region increased in 2018.

The EC decided on October 26 that no exporting country would be permitted to contribute more than 30% of the overall total of imports of hot-rolled flat steel, rebar and wire rod to Europe.

As well, European steel association Eurofer was

preparing to lodge a complaint with the EC regarding the alleged dumping of HRC originating from Turkey, market sources told Fastmarkets on November 26.

But according to Dalbeler the reason that Turkey increased it flat steel exports to Europe is that Europe has anti-dumping duties on hot-rolled flat steel products from China, Russia, Ukraine, Brazil and Iran.

“The main target of the latest revisions on HRC, wire rod and rebar quotas were related to Turkey,” Dalbeler said, noting that this regulation runs counter to the agreement signed in 1996.

USUS President Donald Trump doubled the Section 232 tariff applied to Turkish steel in August 2018 when tensions escalated between the two countries over Turkey’s detention of a US evangelical pastor over alleged links to proscribed political factions. The duties were subsequently reduced back to 25% in May 2019.

But Turkey should be exempted from Section 232 duties because the country meets all the criteria to be exempt, Dalbeler said during his presentation.

These criteria are being a security partner of the US, having balanced bilateral trade and not allowing dumped steel imports from countries such as China.

The reasons that the US imposes Section 232 tariffs on Turkish steel are also inconsistent with WTO rules, Dalbeler noted.

Dalbeler listed the effects of unfair play in another presentation he gave in November this year.

“Trade is the most important and effective way of improving relations between countries. Building walls around us, ignoring WTO rules and twisting definition of fair trade to avoid competition will neither help our industry, nor world peace,” Dalbeler concluded in his speech. nSERIFE DURMUS

Global trade should focus on fair play - Dalbeler

December 2019 Fastmarkets 3

Turkey is calling for a level playing field when it comes to trading with the European Union and the United States, Turkish steelmakers said during a panel discussion at Fastmarkets’ Middle East Iron and Steel conference in Dubai.

Speaking on Tuesday December 10 in a panel discussion about the protectionism Turkish steel faces in its major steel export markets, panelists said they were only asking for fair conditions - not just for importers of steel into Turkey, but also for exporters of Turkish steel.

Ali Okyay, executive vice president at Turkish pipe producer Borusan Mannesmann said the Turkish Ministry of Trade was considering putting a quota on hot-rolled coil imports, as a retaliatory act against the quotas imposed by the European Union.

Turkey began a safeguarding probe in May 2018 following the EU moves and trade measures in the United States, but that ended in May 2019 without imposing any measures.

The European Commission (EC) decided on October 26 that no exporting country would be permitted to contribute more than 30% of the overall total of hot-rolled flat steel, rebar, and wire rod imported into Europe.

In addition, European steel association Eurofer was preparing to lodge a complaint with the EC regarding alleged dumping of HRC originating from Turkey, market sources told Fastmarkets on November 26.

Emrah Ugursal, deputy general manager for foreign trade at Turkish long steel producer Bastug Metalurji said that Turkish producers were not asking for protectionism, just for equal rights.

“Turkey imports big quantities of value-added steel, mainly flat steel products, from EU countries, but does not impose any duty,“ he said. “Bilateral trade volumes should be considered before imposing a quota, rather than focusing on a single product.”

When asked about steel price trends in 2020, Okyay and Ugursal agreed that the any increases would depend on demand.

And they said the apparent strong demand at the moment was really only postponed bookings, because buyers did not want to book when prices were falling, so stocks were low.

The stoppage at ArcelorMittal Italia, strong demand in China and its absence from export markets were the other temporary factors affecting global demand, they added. nSERIFE DURMUS

Be fair to us, Turkish steelmakers plead

“Turkey imports big

quantities of value-

added steel, mainly flat

steel products, from EU

countries, but does not

impose any duty. Bilateral

trade volumes should

be considered before

imposing a quota, rather

than focusing on a single

product.” – Emrah Ugursal

Fastmarkets 4December 2019

Sabic Hadeed expects local steel consumption to increase gradually over the next 10 years thanks to stronger demand from the private sector and not only via government spending or the oil sector, the state-owned Saudi Arabian steel producer said at Fastmarkets’ Middle East Iron and Steel conference in Dubai last week.

Consumption of steel including rebar, wire rod and flat products, in Saudi Arabia will rise in 2020 to 8.5 million tonnes from an estimated 8.4 million tonnes in 2019, Khaled Al-Qahtani, specialist in long products commercial marketing at Sabic Hadeed, citing the country’s Ministry of Finance.

“We expect a slow recovery of demand and in 10 years from now, in 2030, we expect to have similar demand to what we had in 2012 [when it was 11.7 million tonnes],“ Ahmed Al-Hussain, Sabic Hadeed’s senior manager of long products commercial marketing, said.

“Previous market demand was related to government spending but, according to Vision 2030 and our outlook for the next 10 years, demand is supposed to come from private sector, not reliant on oil or government spending,” he added.

Saudi Vision 2030 is a government plan to reduce the country’s dependence on oil and diversify its economy. The largest investments are expected in the Neom project - a new city to be built in northwestern Saudi Arabia. The construction of Neom alone will require the consumption of around 4 million tonnes of steel during the next 7-10 years.

In 2019, around 65% of Saudi Arabian revenue will be oil-dependent, Al-Qahtani said, citing the International Monetary Fund, the Ministry of Finance and Samba, a large financial services group in the state.

Although this is little changed from last year, national dependence on oil revenues has fallen since 2014 when oil prices started to decline. In 2010-2014, Saudi revenue was around 90% oil-dependent.

“But if we do not work on local steel strategy, we

will come up with the same issue of oversupply,” Al-Hussain said.

“In [Gulf Cooperation Council nations] we have around 25 steel suppliers... most supply reinforcing steel, with total capacity reaching 27 million tpy,” he added. “The capacity utilization rate has dropped from 75% five or six years ago to 50% currently.”

Although GCC countries started a safeguard investigation In October focused on hot-rolled flat products, rebar, wire rod, sections and welded and seamless pipe, Al-Hussain warned that these measures “will not fix local overcapacity so the government should review the business structure of the steel industry in Saudi and support the downstream to move away from the construction segment.”

The share held by imports in steel consumption has fallen to around 23% over the past two or three years to around 40%, Al-Hussain said. Exports, meanwhile, will fall to around 2% of all domestic production from 4% last year because of the sharp increase in feedstock costs and a decline in the finished product market, he added.

In particular, Saudi Arabia, the largest steel-producing country in the GCC, has capacity of 14.5 million tonnes per year of long steel products and just 2 million tpy of flat steel products, according to the Arab Iron & Steel Union (AISU). Sabic Hadeed is the only hot-rolled flat steel producer in the GCC.

“All expansion projects have been suspended for local producers because we are waiting for the comprehensive study of the steel strategy,” Al-Hussain said, although he acknowledged that Sabic is working on a joint venture with Mauritania’s National Company for Industry and Mining to

Steel demand in Saudi Arabia will rebound gradually to 12mln tonnes by 2030 - Sabic Hadeed

establish mines there.

The profit pool for iron ore miners rose to 48% in 2019 from 20% a year earlier, while steelmakers’ profit pool slid to 21% from 46%, Metinvest sales director Dmitry Nikolayenko said during the event.

The average of Fastmarkets iron ore 62% Fe fines, cfr Qingdao is $93.70 per tonne in the year to date, up from $69.70 per tonne in 2018.

Fastmarkets’ weekly price assessment of steel HRC,

import, cfr Saudi Arabia has averaged $510.09 per tonne so far this year, down from $602.06 per tonne in 2018.

Given that Sabic Hadeed has a 5.3-million tpy DRI module and is likely to start mining in Mauritania, it might consider constructing a pelletizing plant, a source at the company told Fastmarkets on the sidelines of the event. nMARINA SHULGA

Middle Eastern steel producers need to diversify their product lines to survive weakening demand in the region, according to Saeed Ghumran Al-Remeithi, the chief executive officer of the United Arab Emirates’ biggest steelmaker, Emirates Steel.

Al-Remeithi said in his opening speech at Fastmarkets’ Middle East Iron & Steel Conference in Dubai on Tuesday December 10 that 90% of steel production among Gulf Cooperation Council (GCC) nations was confined to long steel and only 10% to flat steel because of a dependency on construction.

Saudi Arabian steel producer Hadeed Sabic is the only hot-rolled coil producer in the GCC, which also includes Bahrain, Kuwait, Oman, Qatar and the United Arab Emirates.

Amid the current weakness in the construction sector, producers should focus more on value-added products and diversify their production, Al-Remeithi noted.

Emirates Steel, a direct-reduced iron-based integrated steelmaker, counts rebar, wire rod, and section among its finished steel products.

Although it had announced plans back in 2011 to invest in hot-rolled coil production, the investment remains on hold.

Al-Remeithi told Fastmarkets on the sidelines of the conference that the HRC production plan had not been cancelled. A feasibility study on the greenfield project, which would be located in the UAE, continues, he said; he did not specify any timetable, however.

Al-Remeithi noted the importance of the mill’s

facilities being close to downstream sectors. Construction projects, most of which are government-linked, account for most of the steel consumption in the GCC region, he said.

Amid subdued steel demand in the Middle East, particularly in the GCC region, and with depressed oil prices discounting the possibility of any significant improvement in the short term, steel producers in the region ought to take the opportunity to put more focus on value-added steel products, Al-Remeithi added.

Al-Remeithi had forecast a slowdown in demand for 2019 earlier in the year.

He believes too much protectionism, a growing trend globally in recent years, harms the steel sector.

GCC countries started a safeguard investigation into several steel imports in October. The investigation, which covers the period from January 2014 to June 2019, focuses on hot-rolled flat products, rebar, wire rod, section, and welded and seamless pipes.

When asked about his expectation of this investigation, Al-Remeithi said Emirates Steel was seeking fair trade rather than protectionism.Emirates Steel, located in Abu Dhabi, has 3.5 million tonnes per year of finished steel capacity. nSERIFE DURMUS

Emirates Steel CEO urges Middle Eastern steelmakers to diversify

December 2019 Fastmarkets 5

Fastmarkets 6December 2019

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