News Focus: Turkey’s export markets not dampened by currency woes

16 May 2014 09:54 Source:ICIS Chemical Business

Although imports of raw materials are expensive, the weaker lira is making exports more competitive

The weakening of the Turkish lira since the end of 2013 has been a cause for concern and contemplation for many watching Turkish markets, with tales of economic woe being readily relayed to anyone willing to listen.

However, while seeing a country’s currency decline to record low levels is never an encouraging sign for anyone doing business there, there does appear to be some sort of silver lining emerging that may help lift the spirits of some industries.

The cost of imports has increased dramatically for domestic industries in Turkey buying goods and materials in US dollars but selling to end users in lira. There has been a significant negative impact on domestic demand in the Turkish polyethylene (PE) and polypropylene (PP) markets for much of the year.

But when you look at the reverse, the weak currency works in the favour of some manufacturers in Turkey, with exports of finished goods out of the country on the up.

Clothing manufacturer Hayri Ugur, for instance, is seeing a boost to his textiles business with exports to European customers, many of who pay in euros, increasing.

As explained in an April New York Times article, the Turkish lira’s weakness gives Ugur a clear advantage over Asian rivals who would be trading in US dollars.

Since the end of 2013, many, ICIS included, have talked about the dramatic plunge in the Turkish lira against the euro and the US dollar and almost weekly tales of political scandal and upset around the country’s ruling AK Party.

The lira reached a record low of 2.33 against the dollar on 24 January 2014, days before the Turkish Central Bank called an extraordinary meeting to hike interest rates in an attempt to the currency weakening further.

With the plunge seemingly stopped, the lira/dollar exchange rate bobbed up and down between 2.17 to 2.24 in the weeks leading up to nation-wide regional elections on 30 March, the conclusion of which, many hoped, would bring a return of some consumer confidence and steer the economy back towards the heady days of 2011 and 2012.

The country’s economic problems were felt in the Turkish PP and PE markets, with demand slumping throughout March as buyers – especially manufacturers of finished goods for the domestic market – adopting a cautious approach. They stopped buying, preferring instead to use existing stocks to meet lacklustre demand.

But there have been some encouraging signs recently coming out of the PE, and especially the PP markets, with prices rising because of improved demand, some of which comes from markets exporting goods outside of Turkey.

A large amount of fibre imports into Turkey go to the carpet manufacturing hub of Gaziantep, in the south of the country.

At the height of the currency slump, some manufacturers were running their factories at 50% of capacity because of a lack of demand. According to the polymers trader in Turkey, this has now increased to around 80%, but is still below seasonal expectations.

Data released by the Istanbul Textile and Apparel Exporters’ Association (ITKIB) show carpet exports from Turkey valued at US$ 546.68m in the first three months of 2014, 9.9% up on the same period last year, as reported by a textiles industry website in April.

The highest exports were from the machine-made carpets sector, with exports totalling $519.59m, up 10.6%. Much of the PP fibre imported into Turkey is used in the carpet industry.

And it’s not just textiles exports that are improving.

According to figures released by the Uludag Automotive Industry Exporters Union (OIB), auto plants in Turkey shipped motor vehicles and parts worth US$ 2.1bn to foreign markets, up 14% year on year, the Balkans.com business news website reported April.

In the first four months of 2014, 161 countries and 12 free zones received automotive exports from Turkey according to Turkishpress.com.

Grades of PP are also used in vehicle construction, so higher imports from this sector also spell out good things for the Turkish polymers market.

Demand levels
So while the outlook has not been so good for some domestic businesses, others in Turkey have managed to turn the recent currency slump into an opportunity.

Many participants in the Turkish polymers market agreed this week that demand levels were picking up but that there was still room for further improvement.

Demand levels still are not quite at levels seen last year, largely because of the political and economic problems at the start of 2014, but players are optimistic that this will improve in the second half of the year.

Also, the country holds a presidential election in the summer. Current prime minister Recep Tayyip Erdogan may standand that could lead to more unrest amongst anti-AK Party groups.

Looking at the Asian markets, higher PE and PP prices in the China continue to draw material away from Turkey as Middle Eastern and Iranian producers take advantage of better netbacks, bypassing Turkish buyers.

With several buyers in Turkey keeping stock levels low due to weak demand in Q1and into Q2, the market could become tight if demand picks up, leading to a bullish run on pricing as buyers scramble to get limited material to meet manufacturing needs.

All this is speculation, however. It does appear though that, as an exporter, Turkey seems to have managed to weather its recent economic storm rather well. There appears to be some hope for improvement in the coming months, for some industries at least.

By Matt Tudball