Turkish steel mills’ margins expected to tighten
Turkish steelmakers' profit margins are expected to come under downward pressure after Turkey's regulated gas and power tariffs each rose by 9pc from 1 October.
If the increase is passed on in full to steelmakers, the higher prices will raise crude steel production costs by over $4/t, according to Argus' calculations.
Regulated power tariffs for industrial customers rose to 248.53/MW Turkish lira/MWh ($109.83/MWh) for the October 2014–January 2015 period, up by 9pc from TL228.36/MWh for the previous quarter, according to regulatory agency Emra.
Tariffs also vary depending on whether power is used during peak or off-peak periods.
Gas prices for industrial users were raised to TL782/'000m³from TL718/'000m³.
An average tonne of crude EAF steel produced in the EU consumes 490 kWh/t, although each mill's energy consumption varies. The electricity price increase would raise the production cost of a nominal tonne of semi-finished steel by $4.30/t before factoring in the impact of higher gas prices.
The Argus ferrous scrap assessment for HMS 1&2 80:20 cfr Turkey fell to $341.40/t yesterday, down by 80¢/t from the assessment on Wednesday.
"We are trying to find cost-cutting measures within our production in order to counter these [power price] increases," a Turkish mill source said.
"Because of the state of the export sales markets, Turkish mills cannot increase prices for their products to compensate… there is no possibility of rebar going up, for example," a Turkish trader said.
A number of market participants agreed that the options mills have to hedge against the rise in energy prices is currently limited.
Finished steel prices have come under downward pressure, with low-cost imports from Asia-Pacific pressuring price levels.
Some Turkish mills have been buying Chinese billet to re-roll into rebar in an effort to match low-priced Chinese imports before the recent power price increases.
Turkish EAF mills' energy consumption is 65pc electricity, 30pc natural gas and 5pc other sources. For the country's integrated mills, coal accounts for 75pc of energy costs, natural gas 15pc, electricity 5pc and other sources 5pc.
For those steel mills buying power at regulated prices, the power price increases will lead to higher input costs. But it is highly likely that steel mills not buying at regulated prices will also face higher prices, as wholesale and retail power sellers raise prices to reflect higher tariff levels.
In Turkey, customers consuming more than 4,500 kWh/yr are eligible to choose their supplier. The exact impact of the gas and electricity price rises will depend on how and from whom customers buy their power.
Some Turkish mills, such as Icdas and Diler, which own imported coal-fired power plants, may be less affected by the gas and electricity price increases. And while margins are coming under pressure for imported coal buyers, with the weakening lira against a stronger US dollar, such power plants also sell some of their power on the open market, where they may be able to fetch higher prices, offering some relief.
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