Middle East faces stiff competition in Turkey polymer market

Muhamad Fadhil

09-Dec-2014

Focus story by Muhamad Fadhil and Matt Tudball

Istanbul Hyderpasa harbourISTANBUL (ICIS)–Middle East polymer players are facing stiff competition in Turkey, which has drawn in a host of suppliers and distributors in recent years as the market used to offer high margins, industry sources said on Tuesday.

Given its proximity to the region, Turkey is a major market for Middle Eastern suppliers, especially during times of weak demand in Asia and in other parts of Europe.

“Turkey no longer offers high netbacks for producers. We are seeing more intense competition in the market,” said a source close to a Middle East supplier.

The Turkish market used to account for more than a quarter or 2m tonnes of the Gulf Cooperation Council’s (GCC) chemical exports to Europe in 2012, according to the Gulf Petrochemicals and Chemicals Association (GPCA).

The GCC nations – which include Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE – exported 7.8m tonnes of chemicals to Europe in that year, data from the GPCA showed.

However, provisional data from Turkish statistics agency Turkstat in the first 10 months of 2014 showed that Azerbaijan, Israel and Romania feature in the top 10 exporters of PE to Turkey, along with European countries such as Germany, Spain and Belgium.

Saudi Arabia – the only Middle Eastern country in the list – ranks as Turkey’s fourth biggest PE exporter, based on the data.

Located in southeastern Europe, Turkey is a major plastic conversion hub and manufacturer of finished petrochemical goods sold to Egypt, Russia and the UAE.

With suppliers and distributors now proliferating in the Turkish market, buyers can “choose who they want to buy from and at what price”, a source close to a Middle East producer said.

To gain share in what is largely deemed as a saturated market, some Middle East sellers have been aggressively offering steep discounts to market prices at the expense of their netbacks, industry sources said.

Competition has led to a sharp decline in spot PE prices in Turkey, substantially narrowing the gap in offers between this market and China – another major market for Middle Eastern polymer producers – over the past two years.

Offers for Middle East polypropylene (PP) and low density polyethylene (LDPE) to the Turkish market were $140-225/tonne higher than those to China in 2012, but this gap has since narrowed to $42.50-75.00/tonne as of end-November 2014, according to ICIS data.

For the week ended 3 December, prices for PP homopolymer raffia from India and the Middle East were assessed at $1,370-1,400/tonne CFR (cost and freight) Turkey, while LDPE film of Middle East origin was assessed at $1,400-1,430/tonne CFR Turkey, according to ICIS.

Turkey’s polymer imports from the Middle East are being driven by demand for finished goods like carpets coming from countries such as Iraq, Iran and Syria, although regional conflicts have seen this demand severely hit in recent years.

Meanwhile, the euro depreciation has made European polymers more attractive for Turkish buyers, industry sources said.

Turkey is not part of the 28-member EU that use the unified euro currency.

“The weak euro only encourages Turkish buyers to purchase more raw materials from Europe,” a source close to a Middle East supplier said.

The euro has plunged to its lowest level in more than two years against the US dollar in November on concerns about the economic state of the eurozone.

Turkey’s currency – the lira – has also been subject to heavy fluctuations in the foreign exchange market, making polymer buyers cautious about their procurement strategy, industry sources said. 

“The lira remains a major concern for many locals, as well as investors,” according to a Dubai-based petrochemical source.

Concerns about the country’s burgeoning debt and political instability sent the lira plunging to record lows against the US dollar early in the year.

In August, Turkey’s ruling party installed Ahmet Davutoglu as Turkey’s new prime minister, replacing Recep Tayyip Erdogan, who held the post for more than a decade. But Erdogan remains a major political figure as he was sworn in as the country’s president.

A high-profile corruption scandal involving government ministers and businessmen shook Turkey last year that raised calls for Erdogan to resign as prime minister.

“Hopefully, with a new leader, we will see [increased] political stability and a less volatile lira,” the Dubai source said.

Turkey’s economy is projected to post a 2014 growth of 3.3%, which should accelerate to 4.0% in 2015, according to government estimates.

The country is currently establishing “chemical clusters” and is looking at ways to integrate these specialised regions with its sea, land and railway transportation system.

Production at its chemical industry is projected to grow faster than GDP, with downstream industries such as construction, automotive, textiles and packaging expected to boost demand for petrochemical raw materials in the short-to medium-term.

In 2013, Turkish chemical exports totalled about $19.4bn, or about 12.7% of total exports, and the country expects to triple its chemical exports to $50bn by 2023, according to government estimates.

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?