The port of Iskenderun was severely damaged and incoming cargo, including scrap steel, was diverted. It could be several months before port operations return to normal. All activities for now are focused on accommodating survivors who were displaced by the earthquake.
Several nearby steel mills have ceased operations and declared force majeure on contracts with their customers. Steel production in the country will first fall. This will affect supply both inside and outside of Turkey.
Exports of finished steel will drop sharply. Turkish suppliers have shipped an average of almost 20 million tons of finished steel annually worldwide over the past five years. Much of this volume will be removed from the global supply chain.
Production at many Turkish steel mills has declined since the increase in electricity tariffs in September last year. Factories in the country were looking for ways to cut other costs in order to remain competitive in the local and international markets.
However, at the end of 2022, export offers of finished steel to Europe became unattractive. Consequently, few orders were placed. Turkey's total exports fell by about 50 percent in the fourth quarter of last year compared to the same period in 2021. Initially, this will reduce the impact of the recent earthquake on supplies to the European steel sector. The EU accounts for about 30 percent of total Turkish exports over a five-year average.
Rebar is Turkey's largest export by volume and will be one of the key materials needed for post-earthquake reconstruction. More than a third of all rebar exported over the past four years was destined for the Middle East market. Every year, about 4 million tons of finished steel products are imported to this region from Turkish suppliers. How much of this supply will be lost remains to be seen, but the need to replace potentially more than 2 million tons of rebar alone per year will almost certainly push global export prices higher.
Steel demand in Turkey is expected to surge as restoration work begins in in full. Chinese and other low-cost Asian suppliers will try to increase sales to the country. This is likely to narrow the availability in the global steel market. In the short term, we expect reduced availability of finished steel from Turkey to at least partially ease current oversupply pressures in the European and Asian long products sector.
