LONDON (ICIS)--Turkish polymer players fears uncertain times ahead as the Turkish lira (TL) fell to a record low on Monday.
- Lira loses 7% of value in one day
- Year to date, it has fallen 45% against the US dollar
- Central bank's stabilisation measures key, but hopes not high
The lira fell on Monday to a record low of $1:TL7 before rebounding back slightly later in the day. On 1 January, the exchange rate stood at $1:TL3.79.
A speech by President Recep Tayyip Erdogan later in day, in which he accused the US of backstabbing and blamed the lira's fall on foreign attacks, sent the currency tumbling down again.
President Erdogan is believed to leverage major influence over the Central Bank of the Republic of Turkey (CBRT), following his re-election to the presidency in June.
The powers of the President were drastically expanded following a referendum vote last year.
Economic analysts have repeatedly called for an increase in interest rates to counter the crumbling value of the lira, but Erdogan is opposed to higher interest rates as he believes they cause inflation, as well as having a religious opposition to them.
The lira has been on the decline for most of this year and the most recent drop has not caused panic for polymer players, and the general air of pessimism that has surrounded the market for many months has now deepened.
"Purchasing power [is] dropping dramatically over imported goods," said a trader.
A large majority of Turkey's polyethylene (PE) and polypropylene (PP) is imported from around the world.
Iran was previously a major supplier but US sanctions on that country mean many buyers do not want to risk buying from there.
Local producer Petkim is the only domestic producer and provides most low density polyethylene (LDPE) in the country, sourcing much of its raw materials from outside Turkey.
The Turkish plastics market had already ground to a halt on the weak lira and players observing a weakening Asian market.
"I have not done anything on plastics last week. No buyer. It is [at a] standstill," said a source.
There is little optimism for an improvement in coming months, while most of the country will be on holiday for the rest of August.
Solid plans are required to stop the current slump, but some sources had little faith in the government.
"We will wait until the end of the holiday but this economy is very dark," said one player.
"We won't be seeing demand pick up after the holiday season. Purchasing power will not be sufficient to cover all needs," a buyer added.
A lack of buying power could mean limited availability in the country, but the source thought that this was to be balanced by continued weak demand from limited purchasing power.
The loss of Iran as a significant supplier has also been eased by the expanded capacities of various US producers, many of whom have supplied major volumes to Turkey in recent months.
For now, players are forced to wait for the government to implement plans to halt the current fall and begin a recovery.
The CBRT announced on Monday that it would offer more liquidity to commercial banks, which calmed panicked investors and halted the currency's slide.
However, there is little optimism that the central bank can take the necessary actions to begin a recovery.
"Is it going to get worse? Yes," said one source.