Political uncertainty weakens Turkish PP, PE demand ahead of Ramadan

Matt Tudball

20-May-2016

Istanbul, TurkeyLONDON (ICIS)–Recent political events in Turkey have had a negative impact on already weak Turkish polypropylene (PP) and polyethylene (PE) demand during a time when buyers should be stocking up for Ramadan, sources said this week.

Demand in Turkey is poor and prices have been falling in recent weeks as buyers have retreated to the sidelines because of uncertainty in both the PP and PE markets.

Turkish Prime Minister Ahmet Davutoglu announced on 5 May that he was stepping down from his position, with a successor to be appointed on 22 May during the Justice and Development Party’s (AKP) annual conference in Ankara.

On 19 May, it was announced that the minister for transport, maritime affairs and communications Binali Yildirim had been nominated by the AKP to be Davutoglu’s successor. On the same day, the lira reached its lowest level against the US dollar since January, falling to 2.99.  

This change in the country’s ruling party, and the impact on the currency, is making buyers in Turkey nervous and cautious about buying at a time when they would usually be making sure they have covered their positions for the upcoming Ramadan period.

In recent years, cargoes out of Saudi Arabia and other Middle Eastern countries have been delayed due to reduced working hours in the ports and other sectors during the fasting period.

However, because of the very weak demand and lower utilisation rates of factories seen in the Turkish market recently, buyers are thought to have sufficient stock levels to see them through to July and the end of the Eid al-Fitr celebrations marking the end of Ramadan in July.

“A lot of people have taken materials – in warehouses, everyone has enough inventory [to last until] the Eid festival,” a Turkish trader said on Thursday, though it added: “Things may turn around after July.”

Ramadan begins on 6 June and finishes on 5 July, though in Turkey, the Bayram public holidays are observed until 7 July, with business commencing on 8 July.

Demand in Turkey, for both raw material PP and PE as well as polymer-produced finished goods, both for internal consumption and export, has been severely impacted by several factors during 2015 and into 2016.

Exports of finished goods out of Turkey has been impacted by the slowdown in global economies, especially in China, and more locally in Syria and Iraq because of regional conflicts.

Additionally, players in the Turkish PP and PE markets said the current uncertainty in the country’s political system was having a negative effect on the industry and on the country as a whole.

“The prime minister has stepped down and the President will appoint… who is going to be the new prime minister… [and] some foreign investors have left Turkey,” the trader said.

“They are all scared to further [invest]. They do not feel that Turkey is, at this stage, [a country] of stability and prosperity. The wars in Syria and Iraq and the refugee crisis, also [the impact on] the tourism – the country is struggling,” the trader added.

Buyers are not desperate to take stock, especially with prices in Asia and India falling in recent weeks – markets which buyers in Turkey look to for ideas of price direction.

“[Buyers] are refraining from buying, and are waiting to see if prices go down,” an Indian producer said earlier in the week.

“For sure Turkish people are observing what’s happening in Asia and feel the prices should go down. … [When buyers] stop buying, they just withdraw and draw down from their inventory but we don’t know how much inventory they’re carrying,” the producer added.

Other producers share the same view that, despite what traders and buyers in Turkey are saying, stock levels may not be high enough to last buyers through the whole of Ramadan.

“I do not think at all that the inventory levels of the end-users in Turkey [can] last and take them to the end of…Ramadan,” and Iranian PP producer said.

“Actually, I have been in contact with a number of [buyers] this week and they said they have sufficient material until end of May and they do need to purchase in June as well,” it said.

There may be some other options open to both PP and PE buyers during Ramadan, however.

Between 10,000 and 20,000 tonnes of Turkmenistan PP were being offered up for tender last week, sources previously said, though it was not clear how much, if any, of that material was destined for Turkey.

Additionally, high density polyethylene (HDPE) blow moulding and film were being offered from Uzbekistan, a new-comer to the Turkish market who is keen to gain a foothold in the region.

There have also been regular imports of US HDPE entering Turkey during the last 12 months, which could also potentially cover some of the shortfall from the Middle East during Ramadan.

The producer did highlight the impact the current political situation in Turkey is having on market sentiment though.

“There has been some matters which have held [buyers] back from making their purchases…such as their current political situation,” the producer said, referring to Davutoglu’s departed.

“This is one of the reasons they have stopped… purchasing in big volume since… Turkish buyers are very sensitive regarding these kind of [political] events,” it added.

The situation may change following the Domotex Turkey fair in Gaziantep, which runs from 23-26 May, during which PP buyers may secure some additional cargoes ahead of Ramadan.

However, it remains to be seen just how well buyers will fare during the Ramadan period, and whether or not the market will suffer from a lack of availability or have covered themselves sufficiently to outlast and disruption to the markets.

Focus article by Matt Tudball

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