Mixed views on post-Bayram Turkish PE, PP demand

Focus article by Matt Tudball

LONDON (ICIS)–Players in the Turkish polypropylene (PP) and polyethylene (PE) markets have mixed views on post-Bayram demand levels, with some expecting an improvement after the holidays, while others see demand weakening further, sources said this week.

Speaking at the end of last week, a Middle Eastern producer admitted it had to lower its October offers because of weak demand and cheaper European imports, but said it expects to see some pick up in the market following the Eid al-Adha religious holiday, which ended in Turkey on 8 October.

“[Turkish buyers say] C2 and C3 [European October contract prices] rolled over but the exchange rate changed now which affects us,” the producer said, referring to the euro weakening further against the US dollar.

As a result, the producer said it was offering lower prices at the end of last week to remain competitive against European imports.

“It is true that demand is slow”, the producer said, adding: “I think the price now is more stable when Europe becomes stable. Now the exchange rate won’t go lower”.

“I think demand will pick up after Eid,” it said.

However, other sources in the Turkish market are not so sure demand will improve after the religious holidays.

Speaking on the sidelines of the 48th annual European Petrochemical Association (EPCA) meeting in Vienna, Austria on Sunday, a Turkish trader said the current economic crisis in Turkey is what is keeping demand low, with no signs of any immediate improvement. Buyers and traders in Turkey are struggling to get working capital, with some traders slashing prices in order to secure sales and liquidise stock.

Buyers are discouraged from purchasing even at low levels because of weak end-user demand, particularly for grades such as PP fibre, which has seen end-user demand drop considerably since the conflict in Iraq began, closing one of Turkey’s key fibre export markets.

Lower crude and naphtha costs, together with weak demand means Turkish prices may not have reached the bottom yet, as some previously thought they had.

“Since naphtha and crude went down drastically, this means the cost of production [of PE, PP] is no longer a factor, it’ll go down further,” the trader said later in the week, on Wednesday.

“As far as naphtha and crude [are concerned], if [prices] keep as is, it is the bottom [for Turkish PE, PP prices]. But if [crude and naphtha] drops, [Turkey PE, PP prices] could go further.”

However, there may still be some chance prices in Turkey could firm or at least stabilise in October due to currently very low stock levels in the country.

“The only point is the stock level of the buyers and distributors,” the trader said.

“We could see some demand due to stocks next week…because people need materials. I don’t want to be too sure but expect a pick up,” it added.

The Turkish market could potentially face a shortage of material if demand does pick up later in the month.

Currently some Middle Eastern producers prefer to sell product via their European operations because the euro/US dollar exchange rate favours European exports. As a result, some Middle Eastern suppliers to Turkey have stepped away from the market, or are keeping their offer prices high.

Several players comment on the lack of European imports entering Turkey this week despite the arbitrage window from Europe being open.

“I heard that cheaper cargos from Europe are disappearing as producers are reportedly sold out,” an Indian producer said on Thursday.

“We are not seeing massive volumes out of Europe… the offers are very, very limited,” a Turkish trader said.

“There is not a lot of materials from Europe,” a PE buyer said.

A possible further constraint on supplies to Turkey could be a lack of material from Iran due to low prices and logistics issues, which could have potentially made up any shortfall in cargoes from other regions.

“Even Iranian cargos are facing some issues in shipments as per feedback I have,” the Indian producer said.

Because of weak Turkish demand and falling prices, one Iranian PP producer has floated a limited tender to better gage the buying interest levels for Iranian material, with bids expected to be received from the beginning of this week. This was in response to falling bids it was receiving from Turkish buyers because of low demand levels in Turkey.

Currently the outcome of the tender is not known, but if a non-Turkish buyer secures the materials, it will limit imports to Turkey.

In addition, Iranian cargoes may face an additional $20/tonne charge, possibly in relation to fuel costs, imposed on all trucks carrying product across the border. ICIS is investigating the reason for this new additional cost.

This charge, due to be implemented on 1 October but postponed by the Iranian government until 10 October, could also limit Iranian producer crossing the border into Turkey.

Only when players return to the market next week will a clearer picture on price levels and demand emerge.