Editors note. The US decision to quit the job of eating global overcapacity means that other countries must wrestle with the decision of whether they want that job.
Increased tariffs designed to protect the U.S. steel industry are starting to have international repercussions in unexpected places with Malaysia launching an anti-dumping investigation into steel imported from Turkey, a country hit hard by the changed U.S. import rules.
[Tim Treadgold | May 1, 2019 | Forbes]
What's upset Malaysia's steel industry is a flood of cheap steel from Turkey that used to find a market in the U.S. leading to a request from the Malaysian Steel Association for a government investigation into whether steel from Turkey and Singapore is being dumped at a price lower than the domestic price in the exporting countries.
It will take time for the dumping inquiry to establish the facts but a few days before the Malaysian request to examine the flow of steel products out of Turkey an investment bank report identified part of the problem being a worldwide surplus of scrap steel.
Scrap Steel Surplus
Turkey is the world's biggest importer of scrap used in electric-arc furnaces to make exportable products such as reinforcing bar (rebar) used in construction projects.
Steel reinforcing bars. Photographer: Vladimir Weiss/Bloomberg
One of the biggest markets for Turkish steel has been the U.S. but with the higher tariffs it's been necessary for Turkish steel mills to find new markets.
The end result is a curious case of what can happen when a fundamental change is made to the way an industry functions with the root cause of the problem confronting Malaysia's steel industry being surplus Turkish steel, which is being blamed on the increased U.S. tariffs.
According to Macquarie Bank's analysis of the steel market it's the 50% import tariff imposed by the U.S. on Turkish steel which triggered significant changes to the global market for some steel products and for scrap steel because Turkey is the world's biggest importer of scrap.
Scrap Prices Fall
The end result of this complex situation is that the price of scrap has been falling even as the price of the primary material used to make steel, iron ore, has been rising.
Since the end of January, largely because of reduced exports from Brazil after a number of mines were closed, the price of iron ore has risen by around 25%.
Scrap prices, however, have fallen by up to 7% because demand in Turkey, which has a steel industry heavily-reliant on scrap to feed electric-arc furnaces.
Turkey In Trouble
"The reason scrap prices are struggling is simple, the world's largest importer, Turkey is in deep trouble," Macquarie said.
"Anti-dumping duties and a 50% import tariff imposed by the U.S. on Turkish steel has cut-off the country's main export market, while a tumbling currency, also triggered by a political spat with the U.S., has made foreign capital more expensive, choking finance for domestic construction projects, the main steel end-used in that country."
Macquarie estimated that total crude steel production in Turkey dropped by 15% in the March quarter, drying up the market for scrap steel even as the iron ore price was rising sharply.
"As we flagged when trade tensions first emerged, Turkish steel mills have tried to export more steel, targeting markets still open to competition," the bank said.
"Total steel exports have surged by 21% year-on-year despite the loss of the U.S. market. Much of the material previously going to the U.S. has found a home in Europe.
"Far away markets in South East Asia, a market traditionally dominated by steel producers in China, Japan and Korea, have also seen an influx of competitively priced Turkish rebar."
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