The Petcoke Podcast: Turkey's cement sector in 2020

Author Argus

In this episode, The Petcoke Podcast travels to Turkey to discuss the latest developments for the cement and coke markets there.

Argus' Erisa Senerdem speaks to Ezgi Kayahan, Procurement Executive at Akçansa, one of Turkey's largest cement makers, for her views on the impact Covid-19 has had and will have on the supply chain, and on the outlook for Turkish cement plants’ sales and fuel mix in 2020.

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If you’d like to listen to the Turkish version, please click here. 
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Transcript

Erisa: Hello, and welcome to The Petcoke Podcast. In this series, we'll be speaking with key industry participants to gain their insights into the latest trends for petroleum coke markets around the world. In today's episode, we'll be discussing developments in Turkey's cement sector and COVID-19's impacts on the cement and coke markets. The Petcoke Podcast is brought to you by Argus Media, a leading independent provider of energy and commodity pricing information. My name is Erisa Senerdem. I'm deputy editor of the Energy Argus Petroleum Coke reports. And I'm here today with Ezgi Kayahan, who is procurement executive at Akçansa, one of Turkey's largest cement makers. Hello, Ezgi, and thank you for accepting our invitation. 
 
Ezgi: Thanks for having me. 
 
Erisa: It's a pleasure. I'd like to start straight away with my first question. At the beginning of 2020, there were expectations that the Turkey's cement output would increase by around 2% compared with last year. But everything changed quickly with the COVID-19 pandemic, which led to an economic slowdown not only in Turkey, but throughout the globe. What's been its impact on Turkey's cement sector, and what is your direct experience from COVID-19? 
 
Ezgi: This COVID-19 situation is a particular experience for all global supply chain, and the situation of your country or your company is not the only focus of the chain. Of course, situations of your suppliers and customers are another part of the business. I think the most important outcomes of the pandemic situation is rethinking on global supply chain with a sustainability point of view for Turkey's cement sector. 
 
Erisa: Right. And has the pandemic had an impact on cement plants' fuel mix? 
 
Ezgi: Obviously. Actually, there are two main elements of the impact. The first one is global market fossil fuels. I think every production unit, I mean, not just for cement industry, but also for other industries is looking for the value of substitution of the sources for supply security issues. The volatility of commodity price and availability based on pressure for natural resources can cause a disruption in the supply chain, which can affect the operations and undermine the competitiveness. And the second, and maybe the most important perspective is sustainability concerns. Pandemic will raise awareness of worldwide environmental emergencies, and we will face with a paradigm shift for fossil fuel utilization. We, as a company, have already ongoing strong alternative fuels perspective, which is verified with the need of the current world. 
 
Erisa: Yes. It will be really interesting to see the longer-term impact that the COVID has had. And now come to a point which I'm really curious to know your views about. Despite the slowdown from COVID-19, Turkey's coke imports went up by 12%, which is equivalent to 220,000 tons in the first half of 2020 from the year earlier. This was particularly because of a boost in June imports. What do you think are the key factors here? Why did we see this increase, and what is the overall message we get from the figures? Would we expect this trend to be sustained for the rest of the year? 
 
Ezgi: Well, first, we have not involved complete lockdown in Turkey. So cement industry is managing the process via individual shutdowns by plants, or by kilns, or by regions. And we have changed the sales path from domestic path to export path. And the important point is that we shouldn't forget this situation is different from plant to plant, which is mainly linked with the geographical distribution. Although we haven't seen the dramatic activity drop for onshore plants so far, it is hard to say that having the same trend for hinterlands, the situation seems quite same for the rest of the year, I can say. 
 
Erisa: Right. Nevertheless, it's really interesting to see how quick Turkish firms have adapted to the situation. And one other point I'd like to refer to is the coke market situation at the current. The reduction in global coke production has resulted in spiking coke prices, which have been firming since the start of July. I'd like to know if this has forced you to fuel switching from coke to other fuels, and what's your fuel mix expectation for 2020, and can you compare it to 2019, please? 
 
Ezgi: Mainly, we're planning our fuel mixture with consideration of market prices and our sustainability targets. And Turkey's market could provide a quick response to price volatility as fuel switching. And when we see the price increase on coke side, it is not a surprise they are switching to the coal. And also, we are utilizing domestic sources efficiently. As I mentioned it before, we have already ongoing efforts for increasing utilization of alternative fuels, aligning with our sustainability targets. For example, our calorific basis alternative fuel substitution ratio were at 15% on last year where it has reached up to 20% for 2020 by end of July. We started to move from fossil fuels towards alternatives years ago, and getting the benefits, especially on such kind of periods. 
 
Erisa: Right. It’s really curious to see that increase in the share of alternative fuels in your fuel mix from 15% to 20%. It's really a big shift. And adding to these, I'd like to ask, what are the shares for coal and coke? How have these two commodities compared with each other this year? 
 
Ezgi: I can talk on year to date, July figures. Actually, we haven't changed any utilization ratio for coke side, but we have decreased our steam-coal ratio from 12% to 8%. But we're expecting to change this situation because of the coke prices, because of coke to coal switch for the rest of the year. We will see a different kind of distribution by end of this year, I think. 
 
Erisa: I see. Well, thank you so much, Ezgi for sharing those figures and insights. And what I'm also curious to know about is another recent development in Turkey has been the lira depreciation. Lira has lost value against foreign currencies very quickly in recent weeks. What's been its impact on the cement business? Do exports at least mitigate some of the currency risks? 
 
Ezgi: Our production cost is really, really currency-sensitive. And of course, exports means a lot for currency risk mitigation, but this situation is not relevant for hinterland plants, unfortunately. It is a balancing element just for onshore plants, so it is not 100% cure for all cement business. 
 
Erisa: Right. And lastly, but most importantly, Ezgi, I'd like to know what are your expectations on the cement sector's performance for 2020? What's the outlook on domestic sales and exports, and if we could bring a breakdown for your company, but also Turkey overall? 

Ezgi: Data shows that Turkey's export sales will be ended by between 28 million and 30 million tons, which represents 20% increase from a year earlier. When it comes to the domestic sales, it seems like 3% market shrinkage. And overall productions will not have a huge change, I think. Of course, those are the numbers with our current assumptions, and as you know, 2020 has come with a lot of surprises, not just with an epidemic but also with national disasters and political affairs, and we will see what we'll get on this such kind of uncertainty. 
 
Erisa: Indeed, it has, and I hope that it turns out to be the best possible that it can for everybody this year. Ezgi, I'd like to thank you a lot for your valuable views. And if you enjoyed this podcast, please be sure to tune in for the other episodes in our series, The Petcoke Podcast. For more information on Argus petroleum coke coverage, please visit argusmedia.com/petcoke. Thank you.

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