EMRAH UĞURSAL Foreign Trade Manager Overlook of Turkish steel industry and position in the Middle East: comparison of the position of Turkey with that of Iran in the region OK 02.09.2015

11 Million BF Based & 39 Million EAF Based Turkish Steel Production 50 Million Ton Designed Capacity 11 Million BF Based & 39 Million EAF Based %22 ORE BASED %78 SCRAP BASED CAPACITY Source: TCUD 2

Big decrease in Turkish Steel Production Order of Countries for Crude Steel Production (2015-6 months) Big decrease in Turkish Steel Production & Increase in IRAN RANK 2015 COUNTRY 2014-6 months 2015-6 months % change 15/14 % share (2015) 1. China 409.971 415.370 -1,3 50,4 2. Japan 52.635 55.239 -4,7 6,5 3. India 44.957 43.133 4,2 5,5 4. United States 39.857 43.611 -8,6 4,9 5. Russia 35.713 35.418 0,8 4,4 6. South Korea 34.534 36.300 -4,9 7. Germany 22.149 22.485 -1,5 2,7 8. Brazil 17.075 16.746 2,0 2,1 9. Turkey 16.189 17.163 -5,7 10. Italy 11.719 13.105 -10,6 1,4 11. Ukraine 11.258 15.473 -27,2 12. Taiwan, China 10.644 11.159 -4,6 1,3 13. Mexico 9.256 9.652 -4,1 1,1 14. Iran 8.372 8.015 4,5 1,0 15. France 8.166 8.305 -1,7 16. Spain 7.830 7.578 3,3 17. United Kingdom 6.258 6.198 18. Canada 6.250 6.208 0,7 19. Poland 4.947 4.207 17,6 0,6 20. Austria 3.969 3.956 0,3 0,5 Source: WORLD STEEL 3

Turkey's Crude Steel Production by Processes ( 2008-2015-6 months ) %66 Scrap Based – EAF Production decreased %11,6 in first half 2015. %33 Iron Ore Based- BOF Production increased %8,9 Capacity Utilization BOF %98 & EAF % 55 Source: TCUD 4

Turkey's EAF capacities getting idle 2015-6 months Source: TCUD 5

Turkey's EAF capacities getting idle 2015-6 months Source: TCUD 6

605K More Billets imported in first 6 m of 2015 Turkey's EAF capacities getting idle! 2015-6 months 1.257K Less scrap, 605K More Billets imported in first 6 m of 2015 Source: STEEL ORBIS 7

Production of Longs and Flats 8,9 Mt Excess Long Products Turkish Steel Sector’s Production& Consumption Structure 2015 /6 Production of Longs and Flats 8,9 Mt Excess Long Products Turkish Steel Sector is one of the biggest long steel producers in the world out of China. The production methods are not complicated, products are low value added such as reinforcing steel bars which is Turkey’s major product. Turkey is the biggest reinforcing bars exporter in the world after China. Source: TUIK 8

TURKEY’S REBAR EXPORTS – UNDER PRESSURE 2014/ 6 m 2015-6 m % Change-15/14 MT Quantity 1 UAE 611.360 702.565 14,9 2 USA 319.316 642.896 101,3 3 Iraq 512.020 384.261 -25,0 4 İsrael 349.849 269.018 -23,1 5 Egypt 167.868 263.561 57,0 6 Yemen 380.401 210.828 -44,6 7 Kuveyt 45.022 132.286 193,8 8 Brazil 128.564 105.288 -18,1 9 Ethiopia 154.545 97.455 -36,9 10 Oman 39.711 92.144 132,0 11 KSA 133.557 88.111 -34,0 12 Syria 24.975 71.759 187,3 13 Peru 56.865 65.201 14,7 14 Libya 172.175 48.892 -71,6 15 Colombia 9.694 46.151 376,1 16 Costarica 36.723 41.390 12,7 17 North Cyprus 26.054 31.633 55,3 18 Cibuti 2.592 31.177 1.102,6 19 Chile 21.272 25.382 19,3 20 Azerbaijan 18.986 21.100 11,1 Total 3.887.167 3.643.490 -6,3 -%58 of total Turkish rebars exports head to MENA (2141K in first half). Source: Turkish Steel Producer’s As.

TURKEY’S BILLET IMPORTS- SOARING UP %CHG15/14 MT Quantity 1 Ukraine 919.110 941.516 2,4 2 Russia 491.149 863.716 75,9 3 China 96 110.667 115.412,4 4 Belarus 17.453 105.445 504,1 5 Georgia 43.429 47.929 10,4 6 Albania 35.152 38.937 10,8 7 Bosnia 21.046 31.724 50,7 8 Serbia 36.998 17.904 -51,6 9 Libya 12.500 100,0 10 İIran 10.130 11 Germany 7.454 8.875 19,1 12 Italy 10.035 3.888 -61,3 13 UK 655 1.173 79,1 14 Brazil 488 481 -1,4 15 Belgium 355 16 Croatia 292 17 USA 357 279 -21,9 18 France 5.726 237 -95,9 19 Romania 141 192 36,0 20 Spain 120 190 58,3 Total 1.592.409 2.196.942 38,0 Iran would export higher quantities of billes to Turkey due to cost adventage and excess capacity. Source: Turkish Steel Producer’s As.

TURKEY’S HRC EXPORTS- LOOSING WEIGHT 2014-6 m 2015-6 m %CHG-15/14 Mt Quantity 1 USA 203.085 180.493 -11,1 2 İtaly 96.008 86.211 -10,2 3 Spain 35.974 48.633 35,2 4 Portugal 54.013 48.564 -10,1 5 Romania 38.237 42.479 11,1 6 Iraq 15.069 38.557 155,9 7 UK 15.583 38.053 144,2 8 Morocco 29.771 31.979 7,4 9 Algeria 26.093 100,0 10 Tunus 13.544 24.164 78,4 11 Tailand 24.907 22.690 -8,9 12 Syria 2.884 17.953 522,4 13 Local Free Zone 44.169 17.695 -59,9 14 Libya 9.978 15.073 51,1 15 Greece 37.223 14.197 -61,9 16 Nigeria 11.574 11.799 1,9 17 Ethiopia 11.076 11.588 4,6 18 Mexico 11.239 19 Canada 52.219 10.730 -79,5 20 İsrael 8.856 10.210 15,3 Total 832.102 802.494 -3,6 US decision to investigate AD for HRC exports from Turkey has already started to affect the demand from the top buyer. Source: Turkish Steel Producer’s As.

MENA STEEL PRODUCTION FIGURES- IRAN’S LEADERSHIP MENA Steel 2014-6m % CHG (15/14) Rank (2015) Iran 8.015 8.372 4,5 14. Saudi Arabia 3.111 3.118 0,2 24. Egypt 3.362 3.115 -7,3 25. UAE 1.294 1.483 14,6 35. Qatar 1.448 1.301 -10,2 37. Morocco 282 301 6,6 53. Libya 475 234 -50,8 55. MENA 17.988 17.924 -0,4   IRAN is the biggest producer in MENA region which is also Turkey’s main trade partner. IRAN is the only country in the region increased the production in first 6 months 2015. IRAN has most available sources in the region for steel production. (Natural gas & Iron ore) The potential will be clearly seen after sanctions removed. Source: WORLDSTEEL 12

NUCLEAR DEAL & WORLDBANK’s Positive Forecasts on IRAN Lifting sanctions related to Iran’s nuclear program will have a significant impact on the world oil market, the Iranian economy and Iran’s trading partners. Iran’s full return to the global market will eventually add about a million barrels of oil a day, lowering oil prices by US$10 per barrel next year, according to the World Bank, which also expects economic growth in the country to surge to about 5% in 2016 from 3% this year. The Bank’s report estimates that exports from Iran will eventually increase, too, by about US$17 billion, which is about 3.5% of its GDP. Britain, China, India, Turkey and Saudi Arabia are among the countries most likely to see the largest rise in post-sanctions trade with Iran. The lifting of sanctions represents an economic windfall to the Iranian economy. Iran’s experience with managing previous oil windfalls is sobering. The real exchange rate appreciated undermining non-oil exports. Governments facing such economic windfalls have the opportunity to put in place a policy framework that puts the economy on a path of sustained growth. 13

IRAN- NEW COMPETITOR & PARTNER OF TURKEY Iran aims to expand its steelmaking capacity to 55 million tpy by 2025 (Reuters, 2014). Most new plants will be based on the DRI-EAF route. The country has significant resources of iron ore deposits and low-cost natural gas, and these factors are affecting the choice of raw materials used to produce steel in Iran. Although eight new steelworks have been under construction by state-owned IMIDRO since 2006, and numerous projects have been announced, a number of projects were put on hold because of financing constraints caused by economic sanctions. Iran is the biggest producer in MENA out of Turkey. Agreement with Western World will easy payment methods and sanctions. Source: WORLDBANK 14

WORLDSTEEL CHANGED THEIR SHORT TERM OUTLOOK Iron Ore decreased %42 in one year(98 to 56), at the same period scrap lost %41 (375 to 220) The difference of the product prices Chinese and Turkish 102 Usd/mt in average. When the difference is about 60 usd/mt in 2014 First Half, there was not big Chinese exports to Turkish markets. Scrap Prices started to decrease again due to the severe market conditions, however, EAF mills still not competitive against to ore based producers. Source: STEELORBIS 15

RESULTS PRODUCTION METHOD HAS TO BE BALANCED Turkish Steel Sector has a structural case of Scrap Dependency. Turkey cannot be competitive in worldwide markets by importing semis. Semi suppliers such as CIS and China are getting to be more active in end product exports. TRADITIONAL AND NEW COMPATITORS Chinese first enterence was last year into more or less all Turkish export markets. China will continue expanding in end product exports CIS- due to the weak local market and currency-will be more active in end product exports. AM Ukraine has targetted Turkish rebar markets –Higher activity in Egypt and getting into Ethiopia with once folded material. Iran’s short term effect will be negative in overall since Iran has an oversupply on long products and cost advantage. TURMOIL IN MENA REGION Turkish main business partner MENA countries have unstable situation; YEMEN: No one knows when this operation will end but the market stopped completely (-650K rebars) SYRIA: Totally in a mess (Potantial 150K) IRAQ: Getting better but not yet healed (-700K ) Source: WORLDSTEEL 16

IRAN STEEL BUSINESS CONCLUSIONS Risks High trade cost- Can be lower after sanctions removed Absence of know-how and experience for exports Closed market – Comminication error with international markets Political barries; Suni & Shia conflict in the region- Chinese Comptetition Opportunities Strong engineering & ability to produce high quality steel Cost adventage due to local sources and DRI based production Logistic adventage: near to steel consumers in Middle East Persian strong culture and backround in politics and trade High Motivation with removal of sanctions 17

TURKISH STEEL BUSINESS CONCLUSIONS TURKISH STEEL BUSINESS Risks Endless Political turmoil can cause bigger problems. Unemployed young population can cause new uprisings in oil exporters. Stronger USD- Slowing down emerging markets and local consumption Structural over supply and raw material dependency New competitors other than China: IRAN and CIS with cheaper cost structure due to iron ore prices. Opportunities Dynamic economy & marketing with growing young Population Well-known quality and reliability with experience Flexiable production and administration Capacity of transformation (Icdas project and DRI projects) Experienced Engineering 18

Thanks for your interest! İlginize Teşekkürler! Thanks for your interest! با تشکر از شما OK EMRAH UĞURSAL 03.09.2015