Turkish Polyolefins Confront Tight Credit, China Uncertainty


Source of picture: www.turkeytravel.com


By John Richardson

THE economic crisis continues to force the global chemicals industry to think on its feet due to, among many other things, persistently tight credit in some regions.

China has also become even more of an important market with every rumour and counter-rumour about levels of demand there influencing sentiment throughout the world – including, as we’ll talk about in a moment, Turkey.

This almost obsessive focus on in China is a reflection, I think, of weak growth fundamentals in the US and Western Europe. The flawed hope remains that China and other emerging markets can return the chemicals industry to the same level of health it enjoyed in 2003-07 without a developed world recovery.

“Banks in Turkey are less willing to lend to the basic plastics business because of the experience of Q4 2008 when prices collapsed and many producers were left with large inventory losses,” said a Turkish polyolefin trader who I spoke to earlier this week.

“The good news is that because our mortgage sector is less developed than in some other places, our banks are not burdened with large debt.

“But they are still cautious and this caution means that as a trader, you have to marshal credit very carefully and, wherever possible, help your customers. The distributors we deal with are now keeping around 5-10% of their annual revenues as stocks compared with 10-15% before the crisis.”

The oversupplied container-shipping industry has also rationalised vessel availability, resulting in a steep rise in freight costs from Asia to Turkey, he added.

“This has forced us to look elsewhere for supplies and so now we are sourcing more from Turkmenistan and Bulgaria.”

Ten years ago if you had asked anyone in the Turkish chemicals industry about the state of demand in China, you might have been asked why on earth you thought this was relevant.

But in the same interview, the Turkish trader gave me a full run-down of post Chinese New Year demand conditions in China, thanks to his discussions that same day with contacts in Shanghai and Beijing.

Given what he agrees are weak long-term fundamentals in Western Europe, he is as anxious as anyone over whether recent polyethylene (PE) and polypropylene (PP) price declines in China will persist.

He forecasts that overall polymer demand-growth in Turkey, which averaged 17% per annum in 2001-07, will return to double-digit levels by 2011. Growth was minus 6% in 2008 and only 3% positive last year.

But is it realistic to expect this to happen without a recovery in the developed world which seems unlikey to occur until after next year?

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