Turkey Metals Report Q1 2013

BMI's Q113 Turkey metals report examines how the country's steel industry has performed in the face ofexternal headwinds and warns that some segments are facing increased pressure as a result of decreasedmanufacturing activity in the EU. It examines the latest plant projects and whether output is keeping pacewith the ongoing increases in capacity. The report also analyses the investment strategies being employedby the leading players in the Turkish steel industry, as they seek to maximise the growth opportunitiesoffered by the regional market.

Global Slowdown Finally Catching Up With Turkey

Turkey - Monthly Steel Production ('000 tonnes & % chg y-o-y)

Source: BMI, WBMS, Bloomberg

In the first 10 months of 2012, Turkey produced 30.0 million tonnes (mnt) of steel, representing a yearon-year (y-o-y) increase of 7.0%. This followed a strong performance in 2011, when output grew by17.2% y-o-y. As a result, Turkey represented 2.4% of global output growth. BMI believes Turkey is stillon course for its forecast 6% growth in crude steel output for 2012, to 36.1mnt. The country isincreasingly self-sufficient in a broad range of steel products as a result of increased capacity and amoderation in domestic demand growth.

During H112, Turkish flat steel imports were down 5% y-o-y to 2.43mnt, with hot-rolled importsdeclining 4% and coated steel imports falling 23%, offsetting rises of 14% in cold rolled flats and 2% instrip. At the same time, growth in exports is improving the country's steel trade surplus. Total steelexports grew 9% y-o-y over the period to 11.7mnt, with revenue increasing 4% to US$9.3bn.

In the aluminium sector, the country's sole 60,000 tonnes per annum (tpa) Seydisehir smelter - which hasbeen operating at maximum capacity over the past few years - is unable to fulfil all the country'saluminium requirements. Smelters will also face increased competition from re-melters.

Over the last quarter, BMI has revised the following forecasts/views:

BMI forecasts 8.1% growth in crude steel consumption in 2013, with consumption set to reachjust under 43mnt by 2017. This representing a 42% over the levels forecast for 2012.

A decline in flat steel product exports is bound up with the reduction in production of vehicles inEurope, with flat production adversely affected by a 5.7% decline in vehicle exports in H112,which coupled with weak domestic demand led to a 9.1% decrease in Turkish vehicleproduction.

Turkish steel producers have been able to almost monopolise the export of billet to Iran bytaking advantage of EU sanctions, a situation that has enabled billet exporters to increase theirprices.