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Kardemir (BIST:KRDMD), the Turkish steel producer, is set to benefit from a short-term boost to its business as Russia’s invasion of Ukraine hits global steel production. But the company’s future success will depend on how it navigates longer-term challenges, including supply chain disruptions as well as higher energy and commodity prices.

The company, listed on Borsa Istanbul with a market cap of nearly TRY13bn (£), has had a strong 2021, after recovering from having to reduce output the previous year during Covid-19.

According to its latest set of results, for the year ending 2021, the company generated a TRY3.85bn net profit, the highest on record, and up from TRY60.7m in 2020. Earnings before interest, tax, depreciation and amortisation increased by 288% over the period to TRY4.9bn, while sales were up 96% to TRY14.76bn.

The group announced a total dividend of TRY1bn, or TRY0.8772 per share, which it said is the highest distribution to shareholders it has ever made.

Kardemir working to boost steel capacity

The company, which just celebrated its 85th anniversary, has an annual production capacity of approximately three million tons.

In order to boost capacity, Kardemir completed renovation works at a blast furnace, for $18m, earlier this month. The group expects to be able to increase the capacity of the furnace, which reached 450 thousand tons annually, by 25%.

Kardemir, which sold approximately 35 thousand tonnes in the second half of the year, has been working to increase its exports capacity.

Turkish steel exports overall are expected to see a $1bn boost to countries in the European Union, after a ban on steel imports from Russia and Belarus, according to a recent Reuters report. The bans have meant that the bloc will redistribute the quotas previously allotted to the two countries, with Turkey expecting an additional 1 million tonnes.

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Even prior to the ban, demand for Turkish steel had risen in the aftermath of the invasion in February. According to the Turkish Steel Producers’ Association (TCUD) steel exports in January and February were up 2% year-on-year, while the value of the exports increased 52.4% to $2.4bn.
Year to date, Kardemir’s share price is up 72.5% and over one year it is up 136.5% to TRY16.32.

Rise in pig iron prices

But as pig iron prices rise, due to a lack of supply as a result of the war in Ukraine, there have been concerns that the Turkish steel industry, which imports a lot of pig iron, would be negatively impacted. Local paper Dunya reported that the Ministry of Industry and Technology met with Kardemir and rival Isdemir, to ramp up domestic production, which may provide some relief.

Despite the strong momentum off the back of 2021 results and a boost in demand for its products, Kardemir is not going to be immune from the long-term challenges facing steel producers.

The outlook for steel demand is uncertain for 2022 and 2023, according to WorldSteel Economics Committee chairman Maxino Vedoya in a statement to press.

But according to analysts at Info Yatirim, Kardemir stands out amongst its competitors. The group forecast a 2.7x P/E with a 1.4x EV/Ebitda, which is at a discount to peers that have a median 4.8x P/E and 2.6X EV/Ebitda. The analysts raised their price target for Kardemir to TRY23.


Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Selin Bucak

Selin Bucak

Selin Bucak is a Turkish/British freelance journalist based in Paris writing on a range of topics including private equity and venture capital, wealth management, European markets and sustainable investing. She previously served as the editor of Private Equity News at Dow Jones and news editor of specialist B2B publication Citywire Wealth Manager. She has a master’s in Near and Middle Eastern Studies from the School of Oriental and African Studies (SOAS) in London

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