No Turkish arbitrage even if US cuts steel rebar tariff

Turkish steelmakers are likely to find it difficult to sell rebar to the US in the short-term even if President Donald Trump reduces the current 50pc tariff on Turkish steel imports to 25pc.

It is strongly expected in Turkey that Trump will cut the tariff following a Turkish court's release of US citizen Pastor Andrew Brunson on 12 October. Turkish market participants are optimistic that mills can sell rebar to the US at higher prices than the $487-505/t fob Turkey actual weight basis levels at which they have sold to many destinations in October.

But US importers are unlikely to have appetite to purchase higher or even within this range as the Turkish arbitrage opportunity has diminished after US domestic rebar prices hit a ceiling and dropped slightly in the past two months.

US domestic rebar prices are around $700-720/st ex-warehouse US midwest, the equivalent of around $650/mt. Two Turkish mills have stated that the equivalent of $510/t fob Turkey on actual weight basis will be their target price with US exporters if there is a tariff reduction.

When accounting for Turkey-US freight of $25/t minimum, port handling/discharge costs of around $10/t, and the 25pc import tariff, the $510/t fob Turkey level equates to around $681/t ex-dock.

But US rebar imports from Turkey are also subject to combined antidumping and counterveiling duties that predate the blanket Section 232 tariffs introduced this year. Turkish steelmaker Habas' duties total 21.6pc, Icdas' duties total 9.42pc and other Turkish mills' duties total 8.19pc.

Habas' duties make it virtually impossible for it to sell rebar to the US. When factoring in the 8.1pc duty levied on most other Turkish mills, the price of a $510/t fob Turkey rebar cargo sold to the US would be around $736/t ex-dock, or $811.30/st, which is $100/st higher than current average US domestic ex-warehouse rebar prices.

Given this disparity, US importers on the whole will not find the Turkish import price attractive, even if steelmakers offer $495-500/t fob Turkey on actual weight basis equivalent.

Although the Turkish pricing is still not attractive, at least two US importers require imported tonnage because of their large capacities. These buyers are expected to pay a premium price above domestic levels to secure imported tonnage. A Marmara mill is expected to be most likely to complete business with these large capacity importers.

Any expectation that Turkish mills will sell hundreds of thousands of tonnes of rebar to the US appears to be illogical, and 100,000t of sales is estimated to be the maximum that can be achieved for December shipment if the 50pc tariff is cut to 25pc.

These figures will be insufficient for Turkish mills to reduce rebar supply to other overseas destinations and consequently there is little scope for the US import market to influence wider Turkish fob rebar prices upwards.

And the imminent onset of winter in the US will bring a seasonal weakening of rebar demand, which means it is highly unlikely that there will be any near-term upsurge in US domestic rebar prices that would allow Turkish mills to find some arbitrage.