Market outlook: Turkey’s polymers challenge

Uncertainty caused by conflict in the Middle East hits demand for some products

This has been a year of ups and downs for Turkish polypropylene (PP) and polyethylene (PE), quite literally, with prices dropping in the first quarter ahead of regional elections, before rebounding to record high levels in the second quarter, then diving again as both political and economic issues, within and outside of Turkey’s borders, took their toll on the PE and PP markets.

Turkey’s economy is under pressure Copyright: Rex Features

With the fourth and final quarter of the year on the horizon, participants find themselves in a market full of uncertainty. For PP players, the ongoing regional conflict in Iraq and Syria has seen the loss of key export markets, which has translated into very weak demand for PP raffia, and to a lesser degree, fibre grades in quarter three.

PE players have also been suffering from low demand, with the lira still weak against the US dollar after its record drops in early 2014, coupled with limited credit and ready cash availability within Turkey, all causing a cautious buying sentiment in the PE market.

As the market looks to quarter four and beyond, there are no clear signs of improvement in the current market situation. With 2014 regional and presidential elections being rounded off in country-wide parliamentary elections in summer 2015, the Turkish polymers market could still be in for a very uncertain nine months.

PVC OUTLOOK
European polyvinyl chloride (PVC) free on board (FOB) values have been relatively steady during the first half of 2014 due to reasonably solid demand in northwest Europe and sellers’ need to recoup lost margins in the wider chlorvinyls market, following price erosion on caustic soda contracts over the last year.

A main export destination for European sellers is Turkey, along with India, albeit to a much lesser extent, following the hefty anti-dumping duties that were imposed on most European sellers earlier in the year.

In early January, PVC pipe grade prices were assessed steady at $1,000-1,050/tonne FOB northwest Europe and prices have fluctuated only slightly within the range of the low-to-mid $1,000s/tonne FOB during the first nine months of the year. European sellers had been pushing to raise FOB prices this year for margin-related reasons, but Turkish buyers had been generally resistant to accept any increases amid the fragile economic situation in Turkey, which has been dampening demand, according to some players.

During the second half of September, however, European sellers were slightly more flexible on price for export to Turkey, afforded by the strength of the US dollar against the euro, particularly because they are producing in euros and selling in US dollars.

Also, there were some signs that demand was lower than expected for PVC pipe grade in parts of Europe, which was attributed to economic concerns and a bearish feedstock sentiment, which was limiting buying activity. Therefore, European sellers have had some additional volumes available for export.

Demand in Turkey has been subdued because of domestic currency weakness, as well as export demand for end products to parts of the Middle East being adversely impacted by geopolitical tension.

It is hoped that the slight softening in price for European origin material would help to incentivise buying activity in Turkey, although this remains to be seen.

PET RAMPS UP
After struggling to source polyethylene terephthalate (PET), buyers in Turkey are faced with rife competition among new domestic producers, and the market is yet to be hit with more domestic capacity due on stream.

How will the Turkish PET market cope with switching from the role of importer to being self-sufficient in this oversupplied world? Will Turkey be sheltered from the storm by continued safeguard duties that expire in October?

The general opinion is that the safeguard duty of 7% on top of other relevant import duties will indeed remain in place for a further three years. The ICIS Turkish Polymers Conference will analyse the impact so far and what the likely effects will be.

Additional reporting by Caroline Murray