In a recently published report, Fitch Ratings, the international rating agency, recommende mergers or international partnerships within the Turkish steel industry in order to achieve medium to long-term growth and secure the financing needed to expand into value-added sectors such as flat and speciality steel.
Alongside this, Fitch noted that Turkey's steel companies are among the country's most successful exporters. They have established a strong position in the global market thanks to their proximity to suppliers and customers, and efficient modern production facilities.
These views, expressed in "Turkish steel: Time to change", are part of an examination of the structure of the Turkish steel sector and the main issues affecting its credit quality. Turkish steel companies have managed to retain their domestic market share despite greater international competition following the lifting of trade barriers between Turkey and the EU.
The free trade agreement with the EU, coupled with the rise in quality and the low cost of manufacturing, has fuelled Turkish exports and production since 1996: at 25 percent growth, crude steel production outstripped both the growth in EU production (two percent) and the increase in global production (20 percent) between 1996 and 2002.
Nonetheless, its industry is fragmented, with structural imbalances and a mismatch between supply and demand. For instance, domestic demand for flat steel is twice that of domestic output, whereas domestic demand for long steel is half that produced locally.
The agency further states that because China has been the largest driver of global steel production and consumption in recent years, a slowdown in China's consumption—creating excess capacity—is expected to have severe repercussions for the sector in Turkey.
Fitch evaluates the creditworthiness of Turkish steel companies in the same way that it evaluates other steel companies but gives credit to conservative financial management and attention to the size of a company's export book.
Exports are considered credit enhancing because of the hard currency inflows they generate and the protection offered against fluctuations in the Turkish economy. Turkish steel companies—except those already integrated into larger groups—are generally family owned, and lack transparency—one of the main problems in assessing this market—especially in their financial disclosures.
This has already proved a deterrent to investors nervous about the global steel industry and reluctant to invest in the sector. This, in turn, has prohibited Turkish companies—most of which have low capital bases—from moving up the value chain into flat and speciality steel - a move that requires high levels of investment. — (menareport.com)
© 2003 Mena Report (www.menareport.com)
