INSIGHT: The changing face of Turkey’s PP import market

By Matt Tudball

LONDON (ICIS)–Anyone who has visited Turkey and spent time in Istanbul, shopping in the Grand Bazaar, gorging on baklava and sipping tar-black Turkish coffee, will also no doubt have noticed one of the two imposing bridges spanning the Bosphorus, linking the Asian and European sides of the city.

Turkey is often described as the bridge between East and West, and as such has been a centre of trade for thousands of years. The country has been a focus of importance for the manufacturing of many different types of goods, including the famous Turkish rugs sought by shoppers from around the world.

Now a large portion of Turkish textiles are made using man-made fibres, including polypropylene (PP) which is the largest imported polymer into the country. Consumption is focused, around the city of Gaziantep, where many textile manufacturers have their facilities.

Turkish manufacturers rely heavily on PP imports although there is some domestic capacity (Petkim with 144,000 tonnes of nameplate capacity) and a relatively low volume of exports (21,911 tonnes in 2015, according to Turkstat).

Turkey imported a total of 1,565,242 tonnes of PP in 2015 according to Turkstat, with over 30% of that volume coming from Saudi Arabia, the clear leader of the exporting pack.

Saudi material has an average delivery time of around 4-6 weeks, an import duty rate of 6.5%, and cargoes are traditionally sent to the ports of Istanbul in the north of Turkey, and Mersin in the south to serve Gaziantep.

However, as Turkey’s political and economic circumstances have changed, so has the country’s supply of PP. In 2015, the volatile upstream market and a preference for just-in-time deliveries dramatically changed the position of other exporting countries to Turkey.

The first chart below details total export volumes from eight different countries exporting to Turkey in 2010. Saudi Arabia clearly dominated the export market, with almost 450,000 tonnes of exports, followed by India (73,466 tonnes) and Iran (43,837 tonnes).

Fast forward to 2014 and the picture changed significantly. The total yearly volume of exports to Turkey rose from 853,573 tonnes in 2010, to 1.53m tonnes (an increase of 80%) and, with it, volumes from non-Saudi producers. 


Fig. 1

Fig. 2

India remains the second largest exporter to Turkey, sending over 123,000 tonnes of PP to Turkey, but the volume of Iranian and Egyptian exports has increased substantially. Egyptian exports jumped by 800% between 2010 to 2014, while South Korean exports rose from 17,000 tonnes to 75,000 tonnes, an increase of 340%.

Also of note is the increase in imports from Russia and Turkmenistan during that four year period.

Looking at the data for 2015, the import picture changes once again.

Fig. 3

Egyptian exports have seen further increases, overtaking India as Turkey’s second largest PP supplier while Indian exports dropped significantly. Iranian exports have remained fairly balanced, while Russian and Turkmen exports have surpassed 2014 levels, with Russia almost doubling exports to Turkey.

The graph below (Fig. 4) shows the change in export levels for Egypt, Iran, India and South Korea from January 2010 to December 2015, helping to illustrate just how changeable the export market to Turkey has been for non-Saudi producers over the past five years.

The second graph (Fig. 5) spans the same period, but includes Saudi Arabian exports, and illustrates its dominance over Turkey’s PP supply. The graph also illustrates how that dominance slipped slightly in 2015 as Turkish buyers looked for suppliers closer to home to meet their immediate needs.

Fig. 4

Fig. 5

So what has changed in 2015 to cause such a shift in exports to Turkey from non-Saudi producers? The answer requires a bit of a history lesson and is formed of many parts which came together with some perfectly-timed coincidences from early 2015. It created an atmosphere of uncertainty that has plagued the Turkish PP market since.

Turkey started 2015 with the lowest prices seen since 2009 brought on by the drop in crude oil and feedstock prices. With no one sure exactly how far crude would fall during the first part of 2015, and when PP prices would bottom out, Turkish PP buyers, along with buyers from most other regions,  took a very cautious stance and started buying on a hand-to-mouth basis.

With Turkish spot prices dropping almost daily, inventories were kept low as buyers feared taking large volumes only to find they could have bought cheaper had they waited a little longer before concluding deals.

The bearish sentiment soon turned bullish as a spate of force majeures across Europe, together with production problems in the Middle East, saw prices take a rapid upward turn towards the end of the first quarter as availability tightened.

At the same time, Iranian suppliers, some of whom had been offering very low prices to neighbouring Turkey during January for prompt material, stopped exporting to Turkey in favour of more profitable markets.

All of a sudden Turkish buyers found themselves facing significantly higher offer prices from suppliers as material was diverted to other, more profitable regions.

Despite demand in Turkey remaining weak, buyers who did need material were forced to pay substantially higher prices during the second quarter than they had in January even as they continued to purchase on a hand-to-mouth basis.

Turkish PP fibre average prices for the Middle East, India and Iran

While Europe suffered from a lack of material and unprecedented levels of outages, Turkey was having some internal problems of its own that would only go to dampen buyers’ appetites in the second half of the year.

Having seen regional and presidential elections in 2014, Turks went to the polls on 7 June 2015 for the first of what would be two elections that year. When the ruling Justice and Development Party (AKP) failed to get a majority, and coalition talks broke down in the months afterwards, the Turkish lira, which had been dropping since the end of 2013, declined further against the US dollar before hitting record lows in September.

At the same time, terrorist attacks by both IS and the Kurdistan Workers’ Party (PKK) in the southeast of Turkey caused more concern, both politically and economically. Turkey was without a government, its currency was slipping and exports of PP-produced finished goods were dropping.

Credit issues and a lack of cash flow were causing concerns amongst suppliers and traders as some buyers defaulted on payments. Uncertainty prevailed.

However, Turkish buyers were to get a break from the higher-priced material at the beginning of the second half of the year as things started to work in their favour.

European producers were bringing facilities back online while production problems in the Middle East and India eased, and global supply improved.

In Asia, feedstock propylene prices had been dropping since June on lower crude numbers, and buyers in Turkey took this as another sign that a cautious hand-to-mouth buying sentiment would eventually reward those prepared to wait with ever-reducing PP prices.

They were not disappointed. 

Asian feedstock ethylene and propylene average price

From the beginning of the third quarter, Turkish PP prices fell once again on lower upstream costs and weak demand. PP prices from the Middle East dropped almost $400/tonne between June and September 2015.

President Recep Tayyip Erdogan called a second general election on 1 November which saw the AKP return to power with a majority vote this time, but anticipated post-election demand failed to return, and prices followed feedstock trends down to levels not seen since 2009.

So what caused such a significant change in the countries supplying Turkey in 2015? Ultimately it came down to who had the best prices and the quickest deliveries.

Fig. 6

Egypt ultimately won out in the battle of the non-Saudi producers due to two factors: short delivery times and zero import duty on material.

Buyers in Turkey could get very competitive prices and deliveries within 2-3 working days. This made Egypt the go-to supplier for the ever-cautious Turkish buyer during a time of weak end-user demand and uncertain feedstock costs.

Similarly, Iranian suppliers enjoyed an abundance of orders from February-May due to the shorter delivery time across the border to the key Turkish PP production hub of Gaziantep. But while demand dropped during Ramadan, it was Egyptian material that came back into prominence during the second half of the year largely due to those competitive prices and short lead times.

Iranian producers were also eyeing up other markets such as southeast Asia because of the increasingly low bids coming from Turkish buyers. With some domestic production problems towards the end of the year, Iranian offers to Turkey fell away.

The other two suppliers of interest were farther afield. India, once the second largest supply to Turkey, had fallen away due to production problems in the first half of 2015, and a focus by Indian producers on other, more attractive markets outside of Turkey.

South Korean material came to prominence during 2015 because of lower import duty rates (0% on copolymer grades, 3.2% on homopolymer grades in 2015, dropping to 2.1% as of 1 January 2016) and aggressive pricing by suppliers.

While monthly import volumes remained relatively low compared to Saudi Arabia and Egypt, the ever-present supply of both offers and material from South Korea did attract interest from traders in Turkey willing to take the risk on the six week delivery time and import Korean PP.

Indian material has always been available to Turkish buyers, helped by a 3% import duty to give it a slight edge over the Middle East, but has a longer lead time than material from Saudi.

During 2015 there was a noticeable drop in Indian imports, especially during the first half of the year which may be related to production issues at a producer’s facility in India. Imports to Turkey increased towards the end of the year, however. And it will be interesting to see how large a part India plays in Turkey’s PP market in 2016.

Ultimately in 2015, PP imports into Turkey were mostly driven by demand, or a lack thereof. While producers in some countries such as India saw less availability due to production issues, countries like Iran moved away from Turkey because of slowing sales during the year.

Turkish buyers were not necessarily to blame as they were facing a year of huge uncertainty and volatility both within their own markets, and also in terms of the Turkish economy and the political situation. Add to that a breakdown in relations with Russia towards the end of the year, and the fact that the Turkish export market for finished goods has been suffering for some time.

Producers need to make money and there is no point in pushing sales in a country that simply does not need, or doesn’t want the product. Subsequently in 2015, imports from Iran fell in the second half as producers sought more favourable markets.

Turkey had a very tough 2015 and it does not look as if 2016 will be much different, at least for the first half. Import patterns are likely to change once more, and the uncertainty plaguing the Turkish polymers market, currently, shows no sign of improving.

However, Turkish buyers are resilient, and while exports of finished goods may be down, factories in Gaziantep are still running, albeit at reduced rates, and material will still need to be bought.

Despite the ups and downs of the past couple of years, Turkey remains a major player in the polymers market and of significant interest to global producers now and for years to come.

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