Impact of Turkey’s politics and military action on PP, PE

Matt Tudball

31-Jul-2015

Istanbul, TurkeyLONDON (ICIS)–For many months, players in the Turkish polypropylene (PP) and polyethylene (PE) market have bemoaned the state of the country’s economy, and more recently, uncertainty around its political future in the wake of the 7 June general election, both of which have had a negative impact on polymers trade.

And now, in light of recent military strikes carried out by the Turkish air force on Islamic State of Iraq and Levant (ISIL) and Kurdistan Workers’ Party (PKK) targets both within Turkey and in Syria and Iraq, the country faces more uncertainty during an already difficult period.

However, not all of these issues are having a direct impact on the Turkish polymers markets, sources said this week, particularly on Turkey’s PP import and export business, based around the manufacturing hub of Gaziantep in the south of the country (see map, below).

Gaziantep mapTurkey has carried out the airstrikes against ISIL and the PKK following recent separate armed attacks on civilians and security forces in the southeastern provinces of Diyarbakır (red arrow) and Sırnak.

The province of Diyarbakır lies between Gaziantep and Iran, near to a trade route used by Iranian suppliers to bring material across the board from production sites in Tabriz (blue arrow) in the north, and facilities in the south of Iran.

The recent Turkish military action in southeast Turkey was cited by some market players as a reason for a generally under-performing PP and PE market this week and into August, though most of these players were based in the western cities of Izmir and Istanbul, away from localised military operations. Sources also did not make a clear link between the air strikes and a direct drop in demand for polymers.

In contrast, a Turkish trader said its buyers based in Gaziantep were operating as normal with no noticeable impact in day to day life.

“Military action is not our ordinary life,” the trader said, “but we cope with this because nothing is settled in the last few years.”

“In the West side of Turkey we have some concerns about if [the air strikes] impact Gaziantep, but buyers in Gaziantep are not concerned, they see this as a normal life. [Military action has] only impacted the USD/lira exchange rate.”

The Turkish lira is currently at record lows against the US dollar, hitting 2.79 to the dollar early Friday morning.

The biggest concern for Turkey’s PP and PE markets at the moment is the drop in demand seen for both products, especially PP. The market is entering one of its peak manufacturing seasons, yet demand remains weak post-Ramadan, and exports of finished goods are not at the levels the should be.

Turkey has lost its key export markets in Syria, Iraq, Russia and Ukraine due to regional conflict, as well as sanctions on Russia by the EU and US, which has hurt the Russian economy. Exports of finished goods out of Turkey are down compared to 2014 according to traders in the country, and there appears to be no sign of any pickup in demand in the near future.

PP and PE prices have been falling globally in recent weeks, however, and there is a feeling of bearishness sitting over most markets. Even European spot prices have finally started to ease following a spate of force majeures in the first half of the year, leading to severe tightness and record price levels in Europe.

Turkey Asia Europe PP 31 July

Europe will soon enter its traditional August summer holiday period, which will see even more material become available to the wider global market, increasing availability which could lead to further drops in prices throughout August.

Buying sentiment in Turkey was further dampened on Wednesday following the settlements of the European feedstock ethylene contract at a reduction of €70/tonne, and propylene down €80/tonne. Turkish buyers will be looking at both the Chinese PP and PE prices and European feedstock movements as an indication that they should also be able to achieve further reductions in coming weeks.

There may be some signs of improvements later in the year, however. Turkish politicians are currently in the third round of talks to form a coalition government, and if two parties can reach an agreement, the forming of a new government should hopefully bring some much-needed sense of stability to the economy. At the very least it may encourage a bit more confidence among Turkish citizens which could bolster trade.

Demand in September is also expected to increase on the back of heightened activity when European buyers return from holiday and start building stocks. This will take some of the excess capacity expected in August out of the market, and could encourage a bit more demand from buyers.

However, it will not be until Turkey sees renewed buying interest from its old export markets or finds a new outlet for exports that demand in the country may pick up regardless of government or military action.

Map provided by © OpenStreetMap contributors

Focus article by Matt Tudball

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