Abstract
The ship demolition sector is one of the major suppliers of the steel market, even though its share in the total scrap market is very small. As the sector is a supplier of the steel market, it is inevitable that the price changes will be reflected in the construction sector, which is one of the largest steel customers. In this context, it is aimed in this study to determine whether the changes in demolition prices of Turkey, which is one of the main ship demolition locations in the world, have an effect on the construction costs in the country. In order to investigate possible relationships, Turkish demolition prices and Construction Cost Index (CCI) variables are used. The dataset covers the dates between January 2015 and December 2018, and consists of 48 monthly observations. Asymmetric causality test is used to determine the causal relationship between the variables by separating the shocks they contain as positive and negative. The econometric relationship is analyzed with both the USD currency price offered by Turkish demolition businesses and the corresponding TL currency prices in order to diversify the results. According to the results, causality relation from positive shocks in USD based demolition prices to the positive shocks in construction costs index is determined. In addition, there are causalities from positive shocks in TL based demolition prices to the positive shocks in construction cost index, and from negative shocks in demolition prices to the negative shocks in the index. This situation shows that the foreign exchange rates also play an important role in shaping the costs of the construction sector.
Highlights
The scrap sector meets some part of the demand for steel by supplying the scrapped steel to the market (Merikas et al, 2015)
As the demolition prices are obtained in US dollar currency, the statistics for the USD / Turkish Demolition Prices (TL) parity used to convert them to TL are included in the table
When the values of the variables transformed into the return series are examined, it can be seen that Construction Cost Index (CCI) and USD variables have positive skewness values, while both other Demo variables have negative values. These results indicate that the construction cost index and the USD / TL parity are more exposed to positive shocks in the covered period
Summary
The scrap sector meets some part of the demand for steel by supplying the scrapped steel to the market (Merikas et al, 2015) Products obtained from this scrapped steel are generally used as construction iron. The demolition activities are carried out in a few locations across the world such as Bangladesh, China, India, Pakistan, and Turkey, and these countries offer a specific price per tonne to attract ships. This offered price is affected by both maritime market (Mikelis, 2007; Açık and Başer, 2018a) and steel market (Mikelis, Açık and Baran (2019) Marine Science and Technology Bulletin 8(1): 23-29
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