My Friends who have adopted the Stainless Steel Culture,

I'd like to start with our thoughts on a somewhat "newsbreak": the 8% customs duty levied on the cold-rolled stainless steel products to be imported from the far eastern countries as per the import regime supplementary decree published in the official gazette of October 30, 2013. Due to a privilege granted only to South Korea among the Far Eastern countries under the "Free Trade Agreement", no customs duty is being levied on the cold-rolled products to be imported from this country as of 30/10/2013, thus disregarding the "equity and equality principles" and overturning the balances. In the stainless steel sector, the industrialist producers who will import the cold-rolled flat products from the far eastern countries other than South Korea by paying 8% customs duty, particularly the small-sized producers-exporters, will be affected negatively. This decree that eliminates the competition chances of the producers and exporters must be revoked immediately. Thus, the BALANCE OF EQUITY AND EQUALITY will be restored. Our association has already started to work on this issue, and our aim is to perform our duty on behalf of the entire sector on condition of acting and making attempts jointly with the other NGOs of our sector. We will announce the developments in this issue and the results of our efforts made for restoration of the balance to the sector very soon.

We have seen the accuracy of our predictions for the year 2013: a result parallel to positive development in return for our optimism has emerged despite the fact that the danger of crisis in the world was not over yet completely. If we remember our previous analyses, we can see how we are right on our predictions. I would like to present the section summary below to refresh your memory.

We have seen that our expectations in the year 2013 were reasonable, and that no recovery, even speculative, occurred compared with the previous year. However, the sector has stopped bleeding, and the rehabilitation period has given positive signals. When we look at the statistics, the target set for the end of the year 2012, i.e. totally 430,000 tons of actual imports for all stainless steel products, was achieved in the year 2013 as well. 360,000 tons of this quantity is the flat products, and the rest is profiles, pipes, and long products. Almost 60,000-ton part of the total quantity must be considered for restoring the stocks. This quantity must be perceived as the repeat of the record import in Turkish stainless steel sector compared to the past. In the meantime, the stabilized prices of the alloying elements and the uptrend of ferrochrome, in spite of the falling nickel prices, are the leading actors of the normalization. Notwithstanding that, learning lessons from the past and quitting speculations obviously create and reinforce a robust stainless steel market.

We hope the same trend will continue in the year 2014. Although the footsteps of the new crises, which yet to be felt in Turkey, have begun to be heard in Europe and the entire World, they are considered not to be strong enough to have deep impacts as in the previous years, but it is also beneficial to think the opposite. This subject was also handled in various articles in the stainless steel sector in previous years, and the public was informed about it. Consequently, to remind that it is early for our country to shift to the integrated stainless steel production, as I repeat every year:

Relying on my experiences of 44 years, I continue to enlighten the public on the pros and cons of an integrated stainless steel plant - from melting to final product - for our country. I emphasized that a fully integrated plant with rentable capacity should have a capacity between minimum 450,000 and 500,000 tons, and that it is necessary to acquire “know-how” from an experienced and reliable producer on this issue, and said, insistently, that I believe in the correctness of installing such a plant in our country, but such an investment before the year 2050 will just be a luxury. And I still think the same today. Given the fact that the per capita stainless steel consumption has been stagnant at 4 to 4.5 kg since the year 2011, it is possible to establish a rentable plant only if the per capita consumption becomes minimum 8 to 10 kg / year. I can say that there will be no obstacle to us for an integrated investment, provided that a foreign company that will provide the know-how takes on the responsibility and plays the leading role in export of 50% to 60% of the stainless steel produced, considering the global price and quality standards. Care must be taken to ensure that the stainless steel grades to be produced are the ones used in the basic industry of our country. The rarely consumed grades with higher features, on the other hand, should be imported from countries reliable and experienced on this issue. For sure, our country does not have the raw materials required for stainless steel production except chrome. The chromium ore that is not used directly but becomes the main alloying of the stainless steel after being transformed into ferrochrome is available in our country, and a considerable amount of it is exported to foreign countries, mainly the Peoples Republic of China. If our ferrochrome plants, which are present and which we hope to be planned, can be made capable of producing and exporting the entire chrome we extract as ferrochrome, it will be possible to make an ADDITIONAL CONTRIBUTION of at least 4 billion US dollars to our national economy in this way. Even if the fact that stainless steel is recyclable leads to think that the production can be based on scrap stainless steel by 100%, although this theoretically possible, it will lead to numerous quality problems in practice. Therefore, the producers who are experienced on this issue use 35 % scrap on average to produce liquid stainless steel, and for the remaining part, they process and melt the iron ore and the necessary alloying elements. They are scrap iron, nickel, ferrochrome, and the other alloy elements by grades, e.g. Molybdenum, Titanium, and Niobium. The producers whose quality is not much reliable, on the other hand, are trying to decrease their costs at the expense of quality by using high rate of scrap stainless steel.

Today, approximately 120 grades of stainless steel are produced in the world. The grades used in our country are 20 and 25 for now. The basic grades used in our country, on the other hand, are almost 10. Among them, the grades containing ferritic, austenitic and martensitic internal structure crystals and the duplex grades are the main ones.

Considering that our country is going to have a population of almost 100 million in the year 2050, the consumption will be minimum 800,000 tons for 8 kg/person/year. We, who is consuming 1% of the global production today, will consume again almost 1 to 1.2% of the global production in the year 2050, considering the annual increase in the global production. However, we should see in advance that the local and fully integrated investment must have 1-million-ton capacity when that time has come, because the global production will have exceeded 60 to 70 million tons in the 2050s. The People's Republic of China is directing its investments accordingly, and developing projects related to the underground resources of the entire world in advance. And here's the question we can ask definitely today: will the raw material stocks and the energy capacities required for the stainless steel production be sufficient in the year 2050? It must also be questioned who will make it difficult to finance the prices of these raw materials through speculations and thus cut the life veins of the existing plants. The Chinese state has already been directing the raw material inventories used by the entire global industry as well as the pricing policies. I believe that our country should pursue real policies with regard to this issue. With reference to the realities of our country discovered through scientific researches, it would be beneficial to calculate the contribution to our country of exporting our chromium ore, in the production of which we rank the 4th globally, by transforming it into “ferrochrome”. The current average export prices of the chromium mineral fall between minimum $250 and maximum $300. The chromium ore is not used in the industry as mineral. It is the most important one of the basic raw materials of the stainless steel products as an alloying element after being transformed into Ferrochrome. The current price of ferrochrome is set over Euro in the global stock exchanges, and High carbon ferrochrome is about €1,500/ton, while Low carbon ferrochrome is about €2,500/ton. About 1.66 tons of chromium ore is required to acquire 1 ton of ferrochrome–depending on the concentration value. In the year 2013, approximately 2,200,000 tons of chromium ore was exported at a unit price of $250/ton, in return for which almost $550,000,000 entered our country. If the whole amount had been produced and exported in the form of high carbon ferrochrome, 1,300,000 tons of ferrochrome would have been acquired from 2,200,000 tons of chromium ore – as the concentration of Turkish chromium is high (between 42% and 48%) – in return of which $2,670,000,000 export income would have been acquired from the export of high carbon ferrochrome that is easier to produce (at €1,500 per ton, €1,950,000,000 x 1.37 foreign exchange rate = $2,670,000,000). In other words, our country would have acquired $2,000,000,000 additional foreign currencies. If we make the same calculation for the high grade low carbon ferrochrome as well, the additional contribution we will acquire will exceed 3,250,000,000 dollars. With the plus gain of 1 year, we can establish a FULLY integrated stainless steel plant every other year. POSCO that is a Fully Integrated Stainless Steel Producer in South Korea has brought its project of establishing a semi-integrated “rerolling” plant in Izmit/Kocaeli to the implementation stage. It is implementing its projects in several countries, including Turkey, to market the semi-finished hot-rolled stainless steels it produces in its plants in South Korea to the countries of the world as cold-rolled. I leave it to you to calculate in what period the ferrochrome plant investments pay for themselves. It is obvious that the foreign stainless steel investments planned in our country will lead the Turkish investors to be cold towards the fully integrated plant projects at least in the future. The semi-integrated plants are foreign-dependent; they will consent to the directives of the semi-finished product producers and the small profit share they will reserve for the cold-rollers, while the semi-finished product producers gets the lions share as usual. We should see the realities related to such investments being and to be made in our country.

Or it will be beneficial to contact in advance with the experienced foreign companies that can give production KNOW-HOW and start to negotiate with them considering the interests of the country with participation of the specialists in our country who know this issue very well for the fully integrated plants to be planned by the local investors at least in the future. It will be appropriate to ensure that the producers who can give know-how be partners to the investment in our country, and that they will start investment provided that they guarantee the exportation of at least 60% of the production. It is compulsory to acquire plant know-how for the projects and implementations of the plants required for investment and for their parts up to the production stage. The production know-how, on the other hand, must be considered as a conclusion part. The coordination of the company that provides the plant know-how and the company that provides the production know-how and the inclusion of the Turkish investments into this coordination must be ensured. In conclusion, it is necessary to question how and where we can find such an experienced and honest foreign partner. The competition market will help us on this issue. Our state must support that the foreign investors who will have parallel approach first bring forward suggestions and projects so that we can establish a ferrochrome plant and that the local investors go to them with attractive propositions.

The reasons of inclusion of the INOXUM (THYSSENKRUPP/GERMANY) stainless steel units into OUTOKUMPU (FINLAND) group, proposed in the second half of the year 2013, and ratified by the Council of Europe at the end of 2012, are very important. We should remember the striking truth that the new stainless steel investments - especially the integrated facilities - are highly risky in the European region. In an environment where even THYSSENKRUPP that played an important role in invention of the stainless steel in the year 1912 accepts mergers as a solution to reinforce itself, we should see the fault in supporting the semi-integrated plant investments in our own country.

The important points we should consider are as follows:

1* The Far Eastern countries have advanced significantly in the stainless steel production in the last decade, led - and still been leading - the European producers to transform by taking extreme decisions. THYSSEN KRUPP STAINLESS (Germany) that has assigned all its stainless steel integrated facilities to Outokumpu (Finland) has made an attempt to recover its integrated facilities in Terni, Italy back from Outokumpu. Besides, Outokumpu (Finland) has closed the liquid stainless steel production plant in Krefeld, Germany, which it had taken over from ThyssenKrupp.
2* The Far Eastern countries are trying to monopolize the supply of the raw materials, thus pushing the other producers against the wall.
3* It is beneficial to monitor carefully their attempts to purchase or at least operate jointly the global raw material sources, and control our own thoughts and our own country's realities.
4* Since the finished products in the Far Eastern countries have started to be produced in high quality demanded by the Global markets, it is observed that the Europeans are making serious efforts of restructuring to get rid of their cost disadvantage.

We shouldn't say: that's the day; we consider that it is reflected on TOMORROWS. Lets live the day, and think, plan, and prepare implementation platforms for tomorrows.

Thanks for your attention
Istanbul 02.09.2014
SMR – EVENTS in Interconti Istanbul

PASDER STAINLESS STEEL ASSOCIATION
BOARD DIRECTOR
UFUK LEFLEF, PRESIDENT

Istanbul, SEPTEMBER 2014