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Turkish plastics markets see imports fall for first time since 2008

Economic growth
By Paul Hodges on 07-Oct-2014

Turkey Oct14Turkey is the blog’s “go-to” market when it wants to confirm trends in global markets.  The reason is that Turkey has a very successful downstream industry, but has failed to invest in upstream capacity.  This means it is essentially an opportunistic market from a sellers’ viewpoint.

During good times, exporters will only divert product from their domestic market if prices are high.  During bad times they will all compete to sell as much volume as possible.

Last October, the blog worried that the Turkish market was moving into a downturn.  PVC prices had become ultra-competitive due to the rise of new importers from NEA competing with established European and US companies.   Thus data from Global Trade Information Services (GTIS) showed that prices had fallen by 13% in January-July versus the previous year, even though volume had risen 15%.

A year later, the picture has become far worse, as the charts above show using latest GTIS data for polyethylene (PE) and PVC:

  • Turkey’s net PVC imports between January-July 2014 are down 5% versus 2013 (left-hand chart)
  • Turkey’s PE imports have fallen 6% over the same period (right-hand chart)
  • LDPE imports are down 10%, HDPE down 6%, with only the smaller volume LLDPE up 9%

This is a total contrast to performance over the past 15 years, when Turkey’s plastics industry averaged growth rates of 8% (with the exception of 2008).  Currently operating rates in Gaziantep, Turkey’s largest plastics consuming centre, are at just 60%-65%, compared to a normal level of 90%+.

The problems are political and social as well as economic, as a senior industry figure told the blog:

“The area surrounding Turkey is boiling with turbulences in Iraq, Syria, Israel-Gaza, Russia-Ukraine, Armenia–Azerbaijan  which have direct effect to the Turkish economy, basically because Turkey have traditional trade relations with most of those countries that are at standstill under the present circumstances. For instance, most trade activities with Iraq, being the second largest export market of Turkey after Germany, dropped drastically if not stopped at all since last 2 months.

“Furthermore, the slowdown in Eurozone economies (including Germany, which is Turkey’s biggest trade partner)  has been affecting exports, especially the plastics industry.”

In addition, Turkey is an importer of oil and gas, and so is running a major trade deficit due to the record annual prices seen since 2011.  And so far, the potential benefit of today’s lower oil prices has been undermined by the rise of the US$ – as this increases prices in local currency terms.

Sadly, therefore, today’s market is confirming the concerns expressed to the blog a year ago by a leading plastics industry executive:

Turkey is a very competitive polymer buyer and has got a relatively advantageous labor cost structure compared to the EU and &US.  But the terrible situation of these markets means I have serious doubts about the health and sustainability of the actual condition”.

The same figure now warns that polypropylene (PP) markets may be about to follow the downward trend seen in PE and PVC.   Trends in PE usually lead PP, as the converters are smaller and therefore have to react more quickly to changing markets.

Turkey is thus confirming the general weakness that seems to be spreading across global markets, as shown in the American Chemistry Council’s latest data.  It also seems clear that any hope of an upturn in Q4 is wishful thinking.

It could be a long winter.