Turkish steel market participants say the outcome of elections on 14 May is unlikely to significantly lift demand or improve the country’s exchange rate woes.
The market has been at a standstill ahead of the elections, with most buyers holding off unless it is absolutely necessary to restock. Participants expect prices to fall further once it becomes clear the election will not bring the stability or stimulus the economy needs.
The Turkish lira is expected to continue sliding against the US dollar — regardless of the result. If Recep Tayyip Erdogan remains president, his unorthodox strategy of maintaining low interest rates despite high inflation is expected to further depress the lira’s value. Annual consumer inflation in Turkey was running at 44pc in April, central bank data show, down from a peak of 83pc last year. But while the opposition has criticised fiscal policy, a higher interest rate is not expected to be sufficient to boost the value of the lira, given high central bank debt and weak confidence in the economy as a whole.
Some market participants say the lira could lose up to 30pc against the US dollar should Erdogan win, reporting general expectations that the exchange rate could be up to TL26 to the dollar, even up to TL30. Currently, the rate is TL19.54.
Construction demand likely to be slow
After the earthquakes in southeastern Turkey on 6 February, Ankara raised hopes of a construction boom by indicating that 4mn t of rebar would be required over 3-4 months for reconstruction. This was later downgraded to 3mn t over 12 months.
At an industry event this week, Turkish Steel Producers’ Association (TSPA) secretary-general Veysel Yayan said that of the 600,000 homes expected to be built as replacements for those damaged by the earthquakes or deemed unsafe, 130,000 are likely to be built within 18 months, depending on how quickly work starts following the election. The remaining 470,000 homes are likely to take another 4-5 years.
One factor delaying work on the homes is a lack of investment — the cost of overall reconstruction is now estimated at $150bn, up from $100bn earlier. The TSPA also noted that developed economies have provided little financial aid.
An opposition win could further hold up construction projects. The opposition has criticised construction tenders, alleging corruption and favouritism. If opposition leader Kemal Kilicdaroglu is elected, he might seek to reissue some tenders.
Exports unlikely to provide support
On top of a weak outlook in Turkey, poor sentiment in global long steel markets suggests exports will bring little relief.
Turkey’s steel exports — and its own steel sector as a consequence — have contracted in the last two years. Long steel exports fell by 48pc on the year to 1.45mn t in the first quarter, while overall steel exports fell by 49pc to 2.2mn t, according to TSPA data.
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