OUTLOOK '19: Turkey's PE, PP downbeat players face slow year of rebuilding

Author: Ben Lake


LONDON (ICIS)--Turkey's polyethylene (PE) and polypropylene (PP) players are bracing for a difficult year ahead after the market shrank in size in 2018, with most converters having reduced their outputs by 50-60%.

Climbing interest rates and the collapse in the lira's exchange rate against other major currencies also meant that some of those who relied on bank credit found themselves bankrupt, having to shut their companies.

There are no obvious jolts anticipated that could prompt a sudden recovery in the Turkish economy, and many players are instead predicting a gradual recovery based on the slowly rising value of the lira.

Municipal elections in March are the only major domestic political event, after Turkish voted were called to major national elections in the past few years.

Opinion is divided on the importance of the local elections to sentiment, but they may well continue to dissuade players from purchases until they are completed.

ICIS Editorial Chart goes here--

PE players face an evolving supply landscape as US material continues to take prominence in the market as Iranian volumes struggle to make their way, following the re-imposition of sanctions against the country by the US.

A stricter enforcement of the sanctions means that previously successful strategies no longer allow avoidance of US sanctions on Iran.

If the US-China trade war continues into 2019, then even more US' PE may end up in Turkey, potentially forcing sellers into heavily discounting to ensure sales.

If the trade war cools down, then US' PE sellers may re-direct their attention to China. While this would not mean that the US will no longer sell to Turkey, but it may end up affecting the pricing strategy of sellers.

The most pressing question for now, however, is whether the US will continue to heavily discount its material: If demand picks up, will they maintain the current $40-50/tonne discount to Middle Eastern offers?

Suppliers outside the US are currently unable to compete on prices, making the US a trend-maker in the market.

So far, however, imports statistics show that the Middle East continues to be the largest polymers exporter to Turkey.

Moreover, supply levels have not been tested against buoyant demand, which remains subdued, and players in Turkey wonder if there would be enough US supply to really meet basic requirements was demand to pick up.

PP will face a more straightforward, if no easier, situation.

There is little in the way of extra production coming onstream globally and, as a result, availability will remain limited.

This has not been a big issue for Turkish players so far, given poor demand.

PP players could potentially face repeated spikes in price, however, once ready material runs out and buyers are forced to purchase.

Then, once demand falls back to subdued underlying levels, prices would follow the same trend.

Demand remains the key factor in both the PE and PP markets, and availability is likely to fluctuate widely in opposite directions.

This fluctuations, however, would make little difference if the market remains constricted.

Following the economic woes in 2018, even the most optimistic sources only expect a gradual economic recovery in 2019, notwithstanding any unforeseen shock to the economy, domestic or global.

Even the most experienced players, with years of polymers trading on their backs, expect 2019 to be one of their toughest years in their careers.

ICIS Editorial Chart goes here--

Pictured: Istanbul's Eminonu district
Source: SEDAT SUNA/EPA-EFE/REX/Shutterstock

Focus article by Ben Lake