Turkish PE, PP business levels at lows as weak economy takes toll

Source: ICIS News


LONDON (ICIS)--Higher interest rates have become another challenge for players in the Turkish polyethylene (PE) and polypropylene (PP) markets, adding to the woes caused by a depreciated currency.

- Lira decline halts, but remains weak

- Demand limited by financial difficulties

- Import allocations cut due to low business activity

The Central Bank of Turkey (CBRT) hiked interest rates earlier this month from 17.75% to 24%, a higher-than-expected increase as it tries to fend off financial woes and contain inflation.

However, higher interest rates have also increased borrowing costs for corporates.

Meanwhile, the Turkish lira (TL) has halted the declines posted in August, but remains considerably lower than at the beginning of the year.

On Friday, it was trading at $1:TL6.28, down from $1:TL3.79 on 1 January.

“Although the lira is more stable, there is no recovery in the market," said a polymers source.

Business levels have dropped throughout the chain, and imports are lower, with most players operating on a hand-to-mouth to basis, which in turn has prompted many companies to reduce operating rates.

On the back of rising costs and a slowing economy, some companies have entered insolvency as credit has become more to obtain.

According to sources, some companies are refusing to accept letters of credit from government-operated banks.

"Purchasing power 50% [lower] compared with the beginning of 2018," said a player.

There is little optimism for the rest of the year and, while demand may increase next month, the market consensus is that it would take months to recover from the current situation.

Buyers are, therefore, likely to maintain a hand-to-mouth position and avoid building stocks.

"Things are going to get only worse. The market is going to shrink," said a trader.

A lack of imports over recent months may see the import market pick up in October, but weak demand is unlikely to sustain a long rally.

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Buying interest in raffia and fibre is almost non-existent, sources said, which has led to some traders offering deep discounts in an attempt to move stock, a move met with limited success.

Buying interest in high density polyethylene (HDPE) film and blow moulding grades has increased slightly, but still remains weak.

One source reported an offer for blow moulding as low as $1,200/tonne CFR (cost and freight).

Ample supply levels have also kept interest in linear low density polyethylene (LLDPE) and low density polyethylene (LDPE) limited.

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Pictured: Turkey's finance minister Berat Albayrak announces a new economic plan in Istanbul on 20 September
Source: Erdem Sahin/EPA-EFE/REX/Shutterstock

Focus article by Ben Lake