Turkish polymer players face lira crisis calmly but fear for economic growth

Source: ICIS News

2018/05/25

Turkish workers producing olive oil soap at a Turkish factory in NizipLONDON (ICIS)--Players in the Turkish polymer market have become accustomed to economic crisis as repeated political and financial issues have limited market activity over the past few years.

"We are crisis-friendly," as one trader put it.

The latest fall in the value of the Turkish Lira did not bring a desperate response, as a result.

However, the lira’s sharp depreciation could have lasting impacts on economic prospects for the coming year.

The Turkish currency fell in value earlier this week by as much as 5% against the US dollar and 20% overall year to date. On Friday afternoon, the Turkish lira (TL) was trading at $1:TL4.74.

An emergency rate hike by the Turkish central bank helped power a recovery, but volatility has reigned ever since.

Investors are nervous about the prospect of President Recep Tayyip Erdogan winning the upcoming June presidential election, which would increase his powers to set both the political and economic agenda for the country, essentially overriding the central bank’s monetary decisions.

Analysts have pointed out that Erdogan would already be doing that by preventing interest rates rises.

Buying appetite has been poor for a while on the back of the sliding currency, the holy month of Ramadan, potential US economic sanctions on Iran and anticipation of the presidential vote on 24 June.

As a result, this week's slide in the lira’s value did not drastically alter business conditions for polymer players.

"They will purchase, but same as previous month," a polypropylene (PP) trader predicted.

The overall effect of the currency devaluation seem so to have been to push the final few interested buyers away from the market, leaving little extra spot business completed this week.

Players bought their regular volumes and refused to engage with any offers for extra material.

"The key issue is it is only regular business because buyers are cautious. It is putting [downwards] pressure on prices," said one trader.

The source had been hoping to sell PP for $20/tonne higher on the back of tight supply this month, but any interested parties quickly retreated to the sidelines.

"[We] Couldn't increase prices as we wanted," said the trader.

Sellers were not expecting too much activity this week anyway, due to Ramadan and the presidential election.

The weak Lira has been an unforeseen issue and has the potential to limit the market for the remainder of the year.

"Think there will be a contraction of business. Nobody is sure of the situation," a trader said.

"If you look at fundamentals, people should come to buy. Crude is coming up, stock levels are low," it added.

Sources remained mostly calm for the time being, and were currently taking wait-and-see positions.

In truth, there are not many other options open to them.

Some sources also mentioned a fear that the current government would be unable to halt the slide in their economy, which would likely limit any growth in the Turkish polymers market this year.

That would be the contrary to expectations set out at the beginning of the year forecasting a positive year after the tough 2017.

"Offers, lots of offers – but there are no done deals," said a source.

Certainly, there remains interest in investment in Turkey due to its potential for growth, but buying interest is likely to remain muted overall if the lira remains volatile.

Some suppliers have already turned away from Turkey due to a lack of predictability.

The following weeks could be an important period for the overall economy in Turkey.

If the government is able to improve the economy, the remainder of the year could fulfil the promise that some hoped for at the start of 2018.

However, there is also the potential for volatility to become the predominant element in the Turkish market in coming months.

Overall, many players have become weary of repeated crisis that surround Turkey.

"Don't expect too much from Turkey these days," a player said.

Pictured: Workers producing olive oil soap in Nizip, Turkey
Source: Burak Senbak/Solent News/REX/Shutterstock

Focus article by Ben Lake