Turkish lira volatility causes fluctuating profit margins for miners

By William Clarke
Published: Wednesday, 01 May 2019

The volatility in the exchange rate for the Turkish lira has been swinging wildly against the US dollar, with local labor costs changing daily, with effects on the country’s miners of barite, soda ash, magnesia, chromite and feldspar.

Turkish miners are seeing their profit margins fluctuate daily, with the Turkish lira swinging wildly against the dollar.

After a long period of stability since the country’s financial crisis a year ago, volatility has returned to the Turkish lira, with gains or losses of as much as 5% by the day.

On March 22, the lira fell from TRY5.47 to $1, to a low of TRY5.83 to $1. The currency then changed direction, swinging to new highs of TRY5.36 to $1 by March 26.

At the time of writing, the currency stands just above recent lows, at TRY5.65 to $1. Other than the March 22 dip, this is the lowest the currency has been since October 2018.

This weakness is good news for miners, who sell their material in dollars but pay local costs in Turkish lira. Turkey is a major producer of a number of minerals, including barite, soda ash, magnesia, chromite and feldspar.

The volatility is being driven by concerns over the country’s economy and a high rate of inflation.

The country’s president, Recep Tayyip Erdogan, has spoken out against both inflation and high interest rates.

Pressure on the lira is coming from both short-selling in the foreign exchange markets and a move by Turkish citizens to convert lira-denominated savings into foreign currencies.

At the same time, the currency has been supported by interventions which are rapidly burning through the Turkish central bank’s foreign currency reserve.

Data released by the Turkish central bank on March 28 showed holdings of foreign currencies by Turkish residents jumping by more than 11% since the start of the year, to $164.8 billion.

Attempts by the government to shut foreign speculators out of the market by restricting access to the currency has caused the cost of borrowing lira to spike and then subside over the past week.

Other government interventions, including price interventions and pressure on state banks to lend, has only exacerbated the volatility.

Exporters told Fastmarkets they would not rush to adjust prices despite the recent improvement in their profit margins.

"It has gone one way… that’s good for us, but it could go the other," a barite miner told Fastmarkets.

A soda ash trader said that the lower currency would be good for profits.

"All in all, a weak Turkish lira should help companies [as regards] labor costs. The minimum wage was around $520 when the dollar was around TRY3.5 and now it is as low as $380."

"Other than the workers, the company itself should be happy momentarily," he said, noting that they it reduced the burden of local-currency denominated debt.