Turkish PP prices facing possible July increases

25 June 2014 11:07 Source:ICIS News

Focus article by Matt Tudball

TurkeyLONDON (ICIS)--Prices in the Turkish polypropylene (PP) market could rise by up to $30/tonne in July because of a possible increase of crude prices on the back of political unrest in Iraq, sources said on Wednesday.

A Middle Eastern producer, which has yet to announce its July prices to the market, said it expects increases of $20-30/tonne because of higher crude prices as violence in Iraq impacts domestic crude supply.

“Feedstocks are increasing, its the feedstocks that are creating increases [in the PP market],” the producer said, adding it expects other producers in the Middle East to take the same position.

The first producer’s views were echoed by another Middle Eastern supplier.

“We are looking for increase in July [of] about $20/tonne for both raffia and fibre grades. Prices are moving up in the markets because of [crude] and propylene, and limited supply,” a second supplier said, referring to an expected increase in the European July propylene contract price, which is used in the Turkish market as an indicator of possible price direction.  

However, views from other market players were not in agreement.

“I believe that some of the suppliers want to increase prices for July, but this is not easy. My expectation is they will over,” a trader in the market said.

A second trader said any increase in PP for July is not possible, and if anything, prices may soften.

“July increases are impossible,” the trader said, pointing to ex-bonded warehouse prices for raffia at $1,620/tonne. Prices ex-bonded warehouse usually hold a premium of $30-40/tonne over shipped cargoes, which are assessed on a CFR (cost & freight) basis.

Raffia prices were assessed at $1,590-1,640/tonne CFR Turkey last week, according to ICIS, with the higher end of the range representing Indian raffia cargoes which are subject to 3% import duty. Middle Eastern cargoes are subject to 6.5% import duty for both CFR and ex-bonded warehouse prices.

In addition, the trader said Iraq is one of the key export markets for finished goods from Turkey, and the unrest in the country is seeing demand drop in the export market.

So while producers see the turmoil in Iraq as a reason to increase prices, Turkish manufacturers of finished goods are seeing demand from Iraqi customers drop off, which in turn could lead to lower PP demand in the Turkish market.

Sources in the market have been talking of a possible maintenance outage at Turkish producer Petkim in the near future, though it was not clear which grades would be affected, or when the outage is expected to take place.

A market source said on Tuesday that Petkim's tubular low density polyethylene (LDPE) facility is currently shutdown for maintenance for 10 days, but did not have information on Petkim's other production lines. The producer was not immediately available for comment.

Some traders were said to have cash flow problems due to the high interest rates in Turkey, and were liquidating stock levels in order to improve cash flow, putting extra product into the market.

“I think [prices] will weaken in July. Traders are thinking prices will go up because of Petkim so they bought more than they needed. Now they need cash… so they go to big end users and offer $10-20/tonne [discounts] to sell small quantities” the trader added.

Another factor that may limit increases in July is the fasting month of Ramadan which begins on 28 June, and traditionally demand drops during this period when participants connected to the Turkish market either go on holiday or work reduced hours.

In addition, some buyers have already taken a position ahead of Ramadan and built up stock levels, and several now have sufficient inventory to last them until September in some cases.

“If people stop purchasing, traders could panic and make a discount [in prices] and it could snowball,” the first trader said, suggesting that a too aggressive approach to July prices by suppliers could see buyers retreat to the sidelines and wait for lower prices to come into the market.

There are buyers, however, which have low stock levels and will likely be forced to buy during July in order to maintain their manufacturing activities.

These buyers will have to swallow higher prices, however, as the Turkish market is not long.

“The market today [is in a] very strange situation... This year, prices continue to increase [during the build up to Ramadan], [there is] not enough product from Iran, Saudi, Russia,” a producer serving the Turkish market said.

“Some companies have stocks for 2-3 months, they don't need to buy. Some customers who don't have product are ready to pay $20-50/tonne more because they don't have product,” the producer added.

Producers are expected to start making July price announcements from the end of the week.

By Matt Tudball