What Ukraine is Offering Turkey as Replacement for Russian Products

Experts estimate the annual volume of agricultural products that Russian exports to the Turkish market at USD 2.4 billion and the annual volume of mining and metals products at USD 1.6 billion. Russia’s sanction against Turkey opens prospects for Ukrainian exports to Turkey to increase by USD 4 billion.
Ihor Hoshovskyi 09 December 2015 12:58

On 1 December, the Russian government published a list of Turkish goods that will be banned from Russia. The document states that imports of frozen chicken and turkey, tomatoes, and several categories of vegetables, fruits, and salt (including table salt and denatured salt) into Russia will be banned from 1 January 2016. Among other things, charter flights will also be banned.

Turkey is expected to respond to Russia’s decision to ban imports from Turkey. However, the Turks are in no hurry to announce counter-sanctions. Perhaps, there will be no de jure counter-sanctions. However, the big question now is whether Russian companies will sign new contracts for supply of grain, oil, and products of the mining and metals industry.

Ukraine can take advantage of this situation. Ukraine’s Minister of Agrarian Policy and Food Oleksii Pavlenko has already hastened to declare that Ukraine can fully replace Russian products on the Turkish market. According to the Ukrainian Agrarian Business Club (UCAB), the top 10 Russian agricultural products that were sold on the Turkish market were worth USD 78 million in the entire 2014. Experts with CFTS Consulting believe that the annual volume of the Russian mining and metals industry’s exports to Turkey is USD 1.6 billion at November 2015 prices. Thus, Ukraine faces the prospect of increasing exports to Turkey by USD 4 billion.

Metals and ore Out of mining and metals products, Russia exports coal, iron ore, steel, and cast iron to Turkey. In addition to coal, Ukrainian products can successfully replace all the other products of the mining and metals industry. "Iron-ore pellets are exported. Exports totaled just over 2 million tons in 2014 and 1.4 million tons in the first 10 months of 2015. The Ukrainian companies Ferrexpo and Metinvest may seek to export these quantities. Since these companies currently export iron-ore pellets to Turkey (Ferrexpo exported 0.6 million tons of iron-ore pellets to Turkey in the first 10 months of 2015 and Metinvest exported 0.34 million tons), there is no need to establish new trade links," Andrii Isaiev, an analyst with CFTS Consulting.

According to him, Ukrainian products can replace practically all the exports of ferrous metals from Russia to Turkey. Most of the ferrous metals exported from Russia to Turkey are flat products – slabs and hot- and cold-rolled coils and sheets. In addition to flat-rolled products, Turkey traditionally imports billets. These products account for 88% of exports. Billets account for about a quarter of the total exports and flat products account for more than 60%.

In Ukraine, the Illich iron & steel works, Azovstal, and Zaporizhstal (all part of Metinvest) produce flat-rolled steel and slabs. Slabs are also produced at the Alchevsk iron & steel works (ISD). These companies can increase exports to Turkey by 3-3.5 million tons a year combined. Apart from Zaporizhstal and the Illich iron & steel works, all other Ukrainian steel producers produce and export billets. Therefore, if Russian exports leave the market, Ukrainian steel producers will be able to occupy the vacant niche (1.5 million tons).

"Turkey is one of the key markets for Ukrainian steel producers, and it ranks first in terms of exports of ferrous metals from Ukraine. Export of steel products from Ukraine to Turkey totaled 2.4 million tons in the first 10 months of 2015, accounting for 15% of all Ukrainian exports. Practically all Ukrainian steel producers have permanent trade links with the Turkish consumers," Isaiev said.

Agricultural products Ukraine’s Minister of Agrarian Policy and Food Oleksii Pavlenko announced on his Facebook page on 29 November that Ukraine is ready to ensure Turkey’s food security, if necessary, by replacing Russia on the Turkish market. This Facebook post did not go unnoticed, with several Turkish business websites immediately mentioning it.

"Ukraine has sufficient quantities of products of suitable quality to meet the needs of Turkish consumers in the event of introduction of export restrictions by the Russian Federation," Pavlenko wrote.

According to him, it is too early to speak about changes in the volume of trade turnover between the two countries, but Ukrainian producers are willing to, at least, double exports of grain, corn, and oil.

In Ukraine exported agricultural products worth USD 566 million to Turkey in the period from January to October 2015, including grain worth USD 55 million and oil worth USD 75 million.

Ukrainian grain exports to Turkey could increase if Russian traders stopped exporting to the country, the Ukrainian Grain Association’s President Volodymyr Klymenko said.

"If Russia stops exports, then the traditional supplier to the country is Ukraine. We have much to export to the country. Not only wheat and corn, but also sunflower oil," said Klymenko.

Ukrainian producers are willing to at least double their grain, corn, and oil exports to Turkey

Yelyzaveta Malyshko, a leading grain-market expert at the UkrAgroConsult consulting agency, said in comments to the Interfax Ukraine news agency that Turkey is very demanding regarding grain quality and typically buys small shiploads of 3,000-10,000 tons.

"Ukraine exported 400 tons of maize and 105,000 tons of wheat to Turkey in the first four months of the 2015/2016 marketing year. Our exports to that country totaled 329,000 tons of grain in the entire 2014/2015 marketing year, but it will not be a problem to increase them this year," she said.

According to Maria Kolesnik, the head of the analytical department at the AAA consulting company, Russia supplied 5.5 million tons of grain to Turkey in the 2014/2015 marketing year, which is 18% of Russia’s total grain exports.

"Ukrainian wheat may partially occupy the niche that is being vacated. The quality of our food grain is high. Therefore, I think that our traders will quickly orient themselves in the case of such necessity," the expert added.

According to her, Turkey is also the largest importer of Russian sunflower oil. If exports are suspended, Ukrainian companies will also increase their exports to the country because the sunflower harvest in Ukraine this year is large - about 11 million tons.

According to UCAB, Russia exports wheat and meslin worth USD 1.2 billion, sunflower oil worth USD 875 million, corn worth USD 208 million, barley worth USD 49 million, leguminous vegetables worth USD 13 million, and alcohol worth USD 12 million to Turkey.