INTERVIEW-Steel overcapacity will spur plant shutdowns

Fri Jun 22, 2012 3:14pm BST

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* Colakoglu looks to use CME steel derivatives

* Inventory level low, pick up expected in September

By Silvia Antonioli

NEW YORK, June 22 (Reuters) - The director of Turkish steelmaker Colakoglu Metalurji expects steel production cuts and plant shutdowns in the United States, in Turkey, Russia, Ukraine and elsewhere as margins get squeezed by weaker demand and oversupply, he told Reuters this week.

“This a tendency I am expecting for the next 2-3 months: shutdowns not only in the U.S. but almost everywhere...because there is still oversupply, that’s for sure,” Ugur Dalbeler, managing director of Colakoglu Metalurji, said in an interview on the sidelines of an American Metal Markets steel conference.

“That’s one of the reasons why we are having lower prices.” Steel prices have been softening worldwide in the last few months.

In Turkey for example, prices for flat steel products .HRC-TRD=SI have fallen by about 15 percent since a year ago while long steel prices in the Black Sea area lost 10 percent of their value in the same period RCB-BSE=SB, mainly due to softer demand in the debt burdened euro zone and in the Middle East and North Africa (MENA).

Dalbeler also said that Colakoglu, one of the biggest steel firms in major producer Turkey, is looking into using steel derivatives contracts to limit price risk arising from market volatility.

“We haven’t done anything yet because since we decided to use them things in the market got a bit worse. The intention is to start using them slowly but to start creating a reasonable business in our daily operations,” he said.

He said the firm was looking mainly at the CME hot-rolled coil contract and the scrap contract, pointing towards an increased involvement of industrial players, expanding a derivatives market previously dominated by financial companies.

Industrial players have in the past viewed the fledgling market with caution, but increased volatility in steel markets has convinced some of them to enter the market to manage risk.

BETTER AFTER RAMADAN

Steel end users are keeping their inventories very low, below critical levels, as they are confused by the contrasting news about the global economy, said Dalbeler, who is also the vice chairman of the Turkish producers association and a board member of the Turkish exporters association.

This means they will soon be forced to buy at least some material and when a recovery takes place it could boost prices quickly.

“There is a consensus that things will get better in September after the Ramadan and the summer holidays because due to low inventory levels people will have to buy starting from August,” Dalbeler said.

He added that Russian and Ukrainian steelmakers were selling very aggressively into Turkey lately both flat and long steel products. [

Erdemir (EREGL.IS), Turkey's largest flat steel maker, said on Wednesday firms from the CIS were having difficulties in other markets and selling at cheaper prices in Turkey, whose market is stronger than Europe which is struggling with an economic crisis. [ID:nL5E8HLC0H] Turkish consumption of hot-rolled coil, a steel flat product mainly used for white goods production, was 13 million tonnes last year while domestic production at 9 million, with the difference being filled by imports mainly from Russia and Ukraine.

As Turkish steelmakers continue to invest in expanding their flat product output, though, Turkish production is likely to catch up with demand by 2014-2015, according to the executive.

(Editing by Keiron Henderson)

((silvia.antonioli@thomsonreuters.com)(+44)(0)(20 7542 1755)(Reuters Messaging: silvia.antonioli.reuters.com@reuters.net)) Keywords: STEEL SUCCES/COLAKOGLU

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