According to the latest updates, U.S. government has doubled the tariffs from 25% to 50% on steel imports from Turkey with effect from tomorrow i.e. 13 Aug’18. The key reason cited by the White House for increasing its tariffs is the continuous devaluation of Turkish currency Lira over past few months which made exports from Turkey more viable despite the presence of tariffs on U.S. steel imports.
The Turkish currency Lira has been depreciating against US dollars especially since the month of Mar’18 amid its increasing inflation which has surpassed 15% – a 15 year high and expanding current deficit that has widened to more than 6% of the country’s national income.
After the Trump government’s announcement to double the tariffs, Turkish Lira dropped to a record low amid concerns over country’s economic policies as well as the diplomatic row with U.S. Since March, Lira has depreciated by about 50% and is currently being valued at USD 6.43 per Lira.
In case of devaluation of the currency, the exports for any country becomes attractive as it fetches more foreign currency whereas imports become more costly.
How will increase in tariffs impact Turkey’s steel sector?
In 2017, Turkey’s steel exports were valued at USD 11.5 billion, accounting for 7.3% of its total exports worth USD 157 billion, according to the Turkish Steel Exporters’ Association.
In terms of quantity, Turkey exported 16.2 MnT of steel with the highest exports being made to U.S. at 1.7 MnT (11% of the country’s total steel exports) which were worth USD 1.1 billion.
Turkey came in sixth place among the countries the U.S. imported steel from last year, while Turkish steel’s share was 7% of total U.S. steel imports.
Now under a higher level of tariffs, Turkey will continue to lose American customers. However, the new tariffs won’t put Turkish steelmakers out of business, but force them to find new markets, likely across North Africa or the Middle East, or displace other imports to Europe.
Out of the total steel exported from Turkey to U.S., bars used to reinforce concrete and masonry structures accounts for 62%, pipes for piling which is used for foundation support and construction accounts for 37% and cold rolled sheets account for 14%.
Turkey exported about 500,000 tons to the U.S. in the FIRST five months to May’18, compared with more than 1 MnT in the same period last year, according to data from the U.S. customs. In the current year, U.S. has fallen from Turkey’s main steel buyer to number three.
Steel, in its more basic form of slabs, sheet or reinforcing bar, is a highly liquid market and it’s usually easy for companies manufacturing these products to find new buyers in other countries.
Turkey’s ferrous scrap imports will become more costly
Turkey is the world’s largest ferrous scrap importer with highest imports coming from U.S. In 2017, Turkey imported 20.9 MnT of ferrous scrap witnessing a growth of 18% Y-o-Y basis against 17.7 MnT in 2016. During the year, U.S. supplied highest (3.82 MnT, an increase of 17% Y-O-Y) occupying 18% share in country’s total ferrous scrap imports.
In the first half of 2018 from Jan to Jun’18, Turkey witnessed 16% rise in its ferrous scrap imports against the corresponding period of last year and the quantity imported was 10.75 MnT. Exports from U.S. were highest at 1.98 MnT, an increase of 31% Y-O-Y).
The reason for the increase in country’s ferrous scrap imports in H1 2018 is attributed to high usage of scrap in electric furnaces. As per the data released by WSA (World Steel Association), crude steel production in Turkey stood at 18.89 MnT during H1’18 which is marginally up by 4% Y-o-Y basis.
Subsequently, the currency devaluation of Turkish Lira will make imports of ferrous scrap from U.S. dearer, ultimately leading to increased cost of steel production.
Leave a Reply