Turkish PP demand upturn could be temporary

Matt Tudball

11-Feb-2015

Focus article by Matt Tudball

Istanbul, TurkeyLONDON (ICIS)–An increase in the volume of order enquiries in the Turkish polypropylene (PP) market – on expectations of price increases amid higher crude and tight supply – may be temporary, as overall PP demand in Turkey remains flat, sources said on Wednesday.

Turkish PP raffia and fibre prices saw increases of $10-20/tonne last week – particularly for prompt material from Iran – because of a tightening in availability and general agreement among market participants that prices have bottomed out.

While several sources said this week that there has been a noticeable increase in the number of enquiries for material from buyers as oil reached $58/bbl on Tuesday, some believe this is only a temporary pick-up, and demand could drop in the near future.

“Everyone thinks prices will start to increase and this is the bottom price today,” a producer supplying the Turkish market said on Tuesday. “But is this real demand? This is the question.

“There were very limited stocks in Turkey. If [buyers] buy [big volumes] now, after a month they’ll buy zero.”

Stock levels in Turkey have been low for months, as buyers purchased hand-to-mouth on expectations of ever-lower prices amid crude declines. Overall demand for finished goods was also weak.

“Underlying demand [in Turkey] is flat – nothing has happened in the economy, nothing is improving [in the Turkish domestic market], no-one is buying,” a source said on Wednesday.

The increase in enquiries this week could therefore be just a temporary improvement amid talk of market tightness – leading to higher prices being offered by traders looking to take advantage of an element of ‘panic buying’, as some in the Turkish market have suggested.

PP imports into Turkey have declined this week, in particular from Iran, and buyers are now taking positions and building inventory that may sit in warehouses for weeks if end-user demand remains flat.

“All Iranian producers sold their ready stock to the domestic [Iranian] market, China and the Middle East, and very few [cargoes are sent] to Turkey. There is no ready stock,” a distributor said on Tuesday.

Iranian suppliers to Turkey are trying to reduce stock levels ahead of the Nowruz holiday, which officially begins on 21 March. However, deliveries trucked across the border to Turkey may stop as early as 12 March, sources said, and may not resume until the end of the month.

“All inventory has been sold out by Iranian producers,” a second distributor of Iranian material said on Wednesday, adding: “[Producers] are not offering any new prices.”

“But on the customer side, we are hearing something like the prices are going to increase,” the trader added, speaking of the bullish sentiment seen currently in the Turkish PP market.

It is not just buyers who believe prices have bottomed out and the PP market will tighten in coming weeks.

“The market downward trend is ending, and I expect increases during February and March,” a producer with facilities in the Middle East said. “The buying trend increased as there is very limited stocks on the customer side.”

“People see [prices] are reaching the bottom, and prices will increase in March because of oil… and people want materials at lower prices and [to] restock now,” a second Middle Eastern producer said.

So while it seems uncertainty around how low prices will fall in Turkey has disappeared, a new wave of uncertainty may be emerging regarding to what extent actual demand in Turkey has improved, compared to speculative demand.

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