Surging Chinese steel exports have impacted Turkish steelmaking margins and mills’ ability to pay for scrap. On the other hand, inflationary pressure means scrap prices must remain elevated to incentivise collectors, according to global metal recycler Sims.

Although volumes of scrap sold into Turkey have been “perfectly fine … margins are squeezing because of the competition from China,” Sims chief executive Stephen Mikkelsen said during the firm’s first half-year earnings call this week monitored by Kallanish.

“That then flows back through to us and the margins that we're achieving because we're having to buy that scrap in a very increasingly competitive US market. So that's where the squeeze has gone on. It's not so much the price that Turkey is receiving. It's the squeeze on what we're having to pay for that is probably the biggest issue.”

Inflationary pressure has also made scrap collection more challenging. Increased fuel, labour, repair and maintenance, and contract costs necessitate higher scrap prices to keep the business profitable. “The people that are going out and getting the scrap are facing increased costs … And it's not worthwhile for them to get it at these prices. And so that will need to adjust up as well,” Mikkelsen observed.

Sims chief operating officer John Glyde noted Turkish post-earthquake reconstruction is yet to really take shape. “There is, obviously, at some point in time going to be a demand stream around that rebuilding phase in Turkey itself,” he commented.

Turkish mills will however need to compete for scrap supply with increasing US demand. “Turkey is well, well aware of the domestic demand that's building in the US. And we're already seeing increased amounts of shred in particular, which is the ideal feedstock for an EAF, being drawn away from them, leaving them proportionately with more cut grade scrap and less shred being available for the export market,” Glyde added.

“But they also realise that to secure the scrap, particularly off the East Coast, they've got to meet pretty much the domestic pricing. So there is a dynamic playing out there where, in effect, you've got the Turkish demand competing with domestic demand in America,” he continued.

As for inventories in the supply chain, “no one's holding any significant inventory of scrap. I think it's fair to say that the scrap spot supply tightness is playing across the entire industry, including our major competitors,” Glyde concluded.