May/June 1997
This ancient country’s ambitious development has transformed it into a sophisticated trading nation. While most expect Turkey to continue growing, there are concerns that it could digress if it’s denied membership in the European Union. Here’s a look at that controversy, as well as Turkey’s role in the global scrap market.
By Eileen Zagone
Eileen Zagone is an associate editor of Scrap.
Turkey is a study in contrasts. It is at once overwhelmingly Muslim, yet politically, ardently secular. It is ancient, yet full of youthful promise. And geographically, it can be considered part of Europe, Asia, and the Middle East.
The country’s physical location—which has been both its greatest asset and Achilles’ heel—has historically made it an important bridge linking the commerce and cultures of East and West, a role that has continued to be central to its identity since Atatürk founded the Republic of Turkey in 1923.
Surrounded by water and within easy reach of Europe, Asia, the Middle East, and Africa, Turkey’s convenient perch has made it a natural trade hub. Yet, with the notoriously turbulent Middle East to its east and Europe—which views Turkey as decidedly non-European—to its north, the nation exists in a no-man’s-land that has been described as an identity crisis.
To be sure, Turkey’s geographic position amidst often diametrically opposed countries is an apt metaphor for the complex identity challenges it has faced and will likely continue to face as it enters the next century.
The EU Question
Perhaps the most important identity issue of all for Turkey is whether it will become part of Europe this year.
Turkey’s desire to join the European Union (EU) should come as no surprise, for Atatürk undeniably turned the country’s face to Europe rather than the East.
The road to EU membership, however, has been paved with challenges that are far from resolved, and much is at stake. It’s no understatement to say, for instance, that Turkey’s internal development and its future as a global trading partner will be significantly affected by its status in or out of the EU. Explains Ali Oktay, a commercial counselor with the Embassy of Turkey in Washington, D.C.: “EU membership is seen as not only a key to Turkey’s future, but the key.”
Full EU membership is a goal Turkey has been working toward since 1963 when it signed an agreement requiring certain changes to be made—including those related to human rights—before Turkey could be considered for full membership. The country has made much progress since then, Oktay says. And though “some political and social problems still exist,” he concedes, the country has sufficiently proven itself to Europe.
Turkey has indeed undergone considerable transformation in the past 10 to 15 years, including moving its economy away from direct government regulation to greater reliance on free market influences, establishing more liberal foreign trade and investment policies, and demonstrating a willingness to make sacrifices to please western nations. For example, Turkey continues to respect the United Nations’ trade embargo against Iraq, despite the significant loss of revenue it has incurred by curtailing trade with the country, which was consistently its second- or third-largest trading partner before the Gulf War.
To its credit, the EU hasn’t completely snubbed Turkey. Through a special associate membership, Turkey became a member of the EU customs union in January 1996 under which trade between Turkey and any EU nation is free of most tariffs and trade restrictions. The customs union membership is viewed as a stepping stone to full EU membership, says Oktay, though Europe has been reticent to make any promises regarding Turkey’s future status.
The most recent bad news for Turkey came out of a meeting in which representatives of Christian Democrat Parties of EU nations, including Helmut Kohl of Germany, asserted that Turkey should remain in the customs union but not receive full membership. Their reasons included Turkey’s large physical size, restrictions on free speech and other “undemocratic” policies, an ongoing internal battle with Kurdish separatists, a rocky economy, and continuing disputes with EU member Greece, as well as the fact that its population is more than 99 percent Muslim.
Religion is a particularly sore point for Turks, who feel that the primarily Christian EU nations are guilty of religious discrimination and are using religion as an invalid reason to bar Turkey’s membership. As Oktay points out, Turkey is the only primarily Muslim country in the world that is fully democratic and secular. Just one example of its westernization efforts is that “a long time ago Turkey officially changed the ‘day of rest’ to Sunday to align itself more with the customs of the West,” notes an international scrap trader.
Despite its westernization efforts, however, there is a fear in Turkey and Europe that the secularism Turkey proudly espouses may be eroded by a growing faction of Muslim fundamentalists in the country. In fact, for the first time, Turkey’s prime minister is a member of the Islamist Welfare Party. And while that conservative party doesn’t have control of the government and the military remains fervently secular, the specter of fundamentalism has the power to detract from the country’s progress toward EU membership.
The possibility has been raised, however, that if the EU denies Turkey full membership, Turkey’s philosophical course could be reoriented along religious lines as it looks for allies elsewhere. Turkey’s proximity to the newly independent East European states and cultural ties to the Turkic states of the Caucasus, for example, offer potential trade opportunities.
But it can’t be denied that Europe offers the greatest hope for an infusion of trade-related economic growth to Turkey, with Germany among its most important trading partners.
The EU is expected to meet this summer to determine the fate of Turkey and other EU candidates, but in the meantime Turkey, a NATO member, has threatened to abandon plans to encourage expansion of the military alliance if EU membership is denied.
The decision, when it comes, will likely have ripple effects through every aspect of the country, especially those related to trade and the economy and, by association, its industrial development, including its scrap-related industries.
Strong in Steel
In Turkey, the real scrap story lies in steel, the only scrap-based commodity it produces in appreciable amounts. More than half of Turkey’s estimated 13 million mt of annual steel production comes from minimills, and its total capacity is said to be much higher. Turkey’s steel production is limited, in part, by its domestic market, which can only consume about half of the steel it produces. That means, of course, that the Turkish steel industry relies on exports for the other half of its demand—a measure of the importance of its customs union with the EU.
While some new steel capacity is planned in Turkey, the greater emphasis in recent years has been on replacing outdated equipment, increasing efficiency, and producing higher quality and more varieties of steel, says one scrap trader. In fact, he says, Turkey’s steel industry has shined in the past 10 years and is frequently held up to the EU as a symbol of the country’s industrial and economic health.
Turkey’s steel industry has also shown admirable market flexibility, he says. For instance, the country used to be a major supplier of billets to the Far East, but as that region developed its own steel industry, Turkey’s trade there fell off considerably. In response, Turkey found markets for its steel products elsewhere. “Turkey has really become a major player in the world steel industry,” says another scrap executive.
Despite this flexibility, Turkey’s steel industry faces several potential problems in the future. The reason is simple: Since its steelmakers are so dependent on both imports of scrap and exports of steel products, they are particularly vulnerable to price fluctuations and changes in world trade, especially in Europe. Of particular concern are scrap price increases tied to increased worldwide demand for scrap, as more and more scrap-fed mills pop up around the globe.
In contrast to European countries like the United Kingdom and Germany, Turkey—as a developing country—lacks the industrial base to generate enough scrap to meet the needs of its steel industry. As a result, it is one of the largest importers of ferrous scrap in the world and will likely remain a huge importer in the foreseeable future. In fact, one international scrap trader believes that “Turkey has replaced India as a major importer of scrap,” importing close to 7 million mt a year. (See the table on page 46 for a look at Turkey’s imports of ferrous scrap since 1991.)
The lion’s share of Turkey’s ferrous scrap comes from Europe. This makes sense in that Turkey can take advantage of lower freight costs when buying from European suppliers. In addition, trade is simply cheaper and easier between members of the EU customs union.
As for which European countries supply the most scrap to Turkey, that is difficult to discern because, as one recycler puts it, “you have to think of Europe as one country really.” In his view, the European scrap trading arena is a cohesive network of shipping channels through which most traded products move, with little regard to origin. “It’s just the nature of shipping in Europe,” concurs another industry member, adding that “the European river shipping system is very well-developed, with most scrap moving through Antwerp, Rotterdam, or Amsterdam.”
While the quantity of European scrap shipped to Turkey is one issue, its quality is quite another. “European scrap is generally of a significantly lower quality than what is generally produced in the United States,” claims one U.S. scrap exporter. To balance out this “dirty” ferrous, he explains, Turkey buys more expensive but “cleaner” European and American shredded scrap and blends the two together to meet quality demands.
Turkey usually ranks among the top three or four importers of U.S. iron and steel scrap, consuming in excess of a million mt a year of mostly shredded material. But, say most industry analysts, the worm has definitely turned. “In general, ferrous scrap shipments to Turkey from the United States have been declining because the East Coast has become an uncompetitive supplier to Europe—and elsewhere—due to freight cost disadvantages,” explains an East Coast exporter. This downtrend will continue, he predicts, especially if Turkey’s relationship with the EU sweetens, adding that “we will simply not be able to compete pricewise with Turkey’s European suppliers.”
Another more positive reason for the decrease in U.S. ferrous scrap exports to Turkey is that “the market has been so good domestically that even some scrap that in the past would have been marketed overseas is being sold domestically,” notes an East Coast ferrous processor.
In the future, Turkey will likely turn to the United States primarily to make up scrap supply shortfalls from its European imports. A severe winter in Europe, for instance, can wreak havoc on the river shipping system, prompting Turkey—and other countries—to temporarily turn to the United States for material. Even then, economics would come into play, with Turkey increasing its imports of U.S. scrap only when the cost would be less than the cost of its lost steel production. “In short,” the ferrous processor states, “Europe will continue to be the natural choice for most of Turkey’s scrap.”
Turkey’s nonferrous industry, meanwhile, is still in its infancy, with only two nonferrous scrap consumers—one copper, one aluminum—in all of Turkey, according to a copper and aluminum processor in Istanbul. This sector is expected to grow considerably, especially in copper, as the country’s economy grows and strengthens, predicts a nonferrous trader.
Old Problems, Youthful Promise
Despite the predictions that U.S. ferrous scrap shipments to Turkey will decline, the nation is still expected to remain a notable importer of scrap—as well as other products—from the United States. And despite lingering biases about dealing with a country and culture that remains an enigma to much of the world, the consensus of several international scrap traders is that Turkey is a sophisticated country and a good trading partner.
Processors who have dealt directly with Turkish consumers—as opposed to selling through an export broker—report that their businesses are run by savvy professionals who are experienced in the breadth of scrap-related issues. Such business know-how should come as no surprise, says one exporter, who explains that Turkey’s steel industry wouldn’t be as evolved if it weren’t part of an enlightened marketplace. The only problem he has experienced—and it was more than two years ago—was getting western banks to honor Turkish letters of credit because “at the time the country just didn’t have the financial strength to back them up.” Since then, though, his firm has had no problems.
And another recycler adds, “Compared to a country like China, dealing with Turkey is a breeze, and the Turks have taken great strides in welcoming international business and running an evenhanded country overall.”
While Turkey’s economy and industrial sectors are well-entrenched and poised for growth, however, the country still faces a number of formidable challenges that make its future somewhat tenuous.
For starters, inflation continues to be a problem, with estimates running around 80 percent. Add to that the political corruption that has made headlines recently and the political and economic instability predicted by some analysts, and the result is a potentially volatile cocktail that is decidedly not business- and growth-friendly.
Also, Turkey’s energy infrastructure is currently insufficient to handle the rapid increase in energy demand brought about by its surge of industrial growth. Plus, electricity prices are extremely high, with obvious negative repercussions on electricity-intensive producers such as minimills.
The Turkish government has taken steps to augment the existing infrastructure to support growth and a better economic environment. The Southeast Anatolia Project under way in the Tigris and Euphrates basin is an ambitious project that brings the promise of hydroelectric power and irrigation to one of Turkey’s poorest regions. Transportation and increased accessibility to the region are planned, including rail, road, sea, and air links as well as enhanced telecommunications, schools, and industrial facilities. Upon completion, this project is expected to offer promising investment opportunities, especially in the areas of industrial and agricultural development. Equally important, the project will elevate the lifestyle of the region’s populace and, in the long term, expand building opportunities and raise residents’ discretionary income, thus increasing demand for consumer and construction products, including steel.
Turkey’s most important challenge, however, is persuading the EU that it deserves to become a full-fledged member. The issue is all the more intensified because Turkey has put all of its figurative eggs in Europe’s basket. If it is denied membership, some fear that the country could enter a downward spiral, both politically and economically.
For now, though, Turkey seems to be maintaining an optimistic outlook for its future. Fortified with government and foreign investment, as well as membership in the EU customs union, the republic may not require full membership to continue its progress. “There’s so much young energy in Turkey, and they want to do things a new way,” says one international scrap broker, who feels that the younger generation holds the key to sustaining Turkey’s forward momentum.
A principal at an Istanbul scrap processing operation—whose five executives are all younger than 30—agrees, explaining that “the younger generation is educated, multilingual, committed to a free market, and eager to foster international ties and be a part of the world market. Nobody can prevent Turkey from continuing its strong growth.” •
This ancient country’s ambitious development has transformed it into a sophisticated trading nation. While most expect Turkey to continue growing, there are concerns that it could digress if it’s denied membership in the European Union. Here’s a look at that controversy, as well as Turkey’s role in the global scrap market.