New Turkish mills spark wire rod overcapacity fears

Turkish mills' extensive investment in new wire rod facilities, spurred by high demand and firm prices, has sparked fears of market overcapacity, according to industry sources.

Turkish steelmakers Habas, Icdas and Kaptan have all ordered new wire rod mills in the last 10 months, each with a capacity of 500,000 t/yr. Integrated steelmaker Kardemir has also commissioned an upgrade for its wire rod line.

Kaptan does not currently produce wire rod, but its new mill, ordered in March 2021, is expected to commission in mid-2022. The facility will be complemented by a new upstream mill with a capacity of 650,000 t/yr, to prepare "round feedstocks" to be further rolled and finished in the wire rod outlet.

Habas and Icdas both ordered new wire rod mills in November 2020. Icdas' is scheduled for commissioning before the end of the year. In late 2020, the company told Argus it was aiming to double its wire rod production in 2021. Habas' new mill was initially planned to start operation in July-September 2021, but has been delayed until the second quarter of next year. The new facility will double Habas' wire rod capacity. Meanwhile, Turkish manufacturer Tos Celik, a historically small rebar producer, has paused production altogether to focus on wire rod output, citing attractive prices and an over-saturated rebar market.

The planned 1.5mn t/yr in new facilities has sparked concern that overcapacity may dampen prices. Tighter order books and lower production have enabled Turkish suppliers to maintain a healthy spread to rebar and higher prices than Black Sea competitors in recent months.

"Producers saw wire rod as more profitable than rebar and decided to install new wire rod facilities, it's greed. Soon wire rod will be the same price as rebar," one industry source said. Greater Turkish production will definitely weigh on prices in 2022 and force Turkish producers to find new export markets, a Turkish mill added.

Optimistic manufacturers believe the capacity additions are in proportion to rising demand in recent years. Turkish wire rod exports more than doubled between 2015 and 2019, rising from 792,208t to 1.88mn t, before recording a decline in 2020 on account of the Covid-19 pandemic. This year, exports are mounting a strong recovery, totalling 776,000t by the end of July.

On the domestic market, wire rod is also being increasingly favoured over rebar by Turkish fabricators as it is easier to store, bend and transport. Integrated steelmaker Kardemir ordered an upgrade to its wire rod mill in February 2021 that will reduce the diameter of its coils, optimising them for container transport. Domestic orders are expected to keep growing owing to these logistical advantages, one mill said, and Turkish demand will grow into the fresh capacity.

The current market does not bode well for Turkish mills, which have been on the back foot since late July after a downturn in global longs prices caused buyers to retreat. This week, demand was yet to return. The Argus Turkish wire rod assessment has fallen every week since 21 July, down by $75/t and standing at $760/t fob on 8 September. It is too early to determine the impact that 1.5mn t/yr of new capacity will have on prices, and much will depend on global market conditions once these facilities come on line. Still, the potential threat has been enough to worry many in the market.

By Sam Angell