Economic turmoil shrinks Turkey PE and PP

Source: ECN

2019/02/15

Economic contraction has had a significant effect on Turkish import levels of polyethylene (PE) and polypropylene (PP) in 2018.

Full year data from the Turkish data agency, Turkstat has revealed a halt to the healthy growth of the Turkish plastics industry last year.

Many players had already commented on an overall drop in run rates at converters, brought on by the collapse in value of the Turkish lira against the US dollar.

December figures were released at the start of February and reveal that high density polyethylene (HDPE) suffered a major drop in demand, down 170,000 tonnes from 2017.

This is likely to be due to a combination of the weak economy and a charge on plastic bags introduced on 1 January. Sources have already confirmed that this severely disrupted order levels for HDPE film.

“I visited seven converters and they are working at a rate of 20% and these produce plastic bags for grocery stores,” according to a trader.

PP import volumes also suffered when compared to the total level of imports from 2017, falling over 60,000 tonnes from 2018. Most damage was done in the period between August and October, when the lira was at its weakest. Prior to that 2018 PP imports were generally above 2017 numbers.

2017 had been considered an incredibly difficult year by many players but, at least in terms of import levels, there was healthy growth in volumes. 2018, however, saw demand fall in line with prices.

The only product that showed any growth in delivered volumes was linear low density polyethylene (LLDPE).

This can be attributed to volumes from expanded US capacities, which was fuelled by ethane produced from the country’s vast gas deposits. Prices crashed due to the glut of material in a low demand market.

Low density polyethylene (LDPE) suffered a less significant drop from 2017 levels but is mostly provided for by domestic producer Petkim.

August proved to be the nadir for Turkish polymers trading as imports for all products crashed.

The numbers from 2017 and 2016 showed this not to be a seasonal trend.

2018 volumes showed a steady decline throughout the year, which began positively until the lira began to depreciate.

The low point in August matches with the lowest value of the lira.

As most orders are made at least a month in advance, the currency slow down was apparently limiting transaction levels before the lira hit bottom.

Despite trade being limited, 2018 trade flows adapted as new PE production came online.

What is immediately apparent from the LLDPE and PP figures is the decline of interest in Iranian product. US sanctions on Iran, have been strongly enforced. Previous sanctions were easily worked around by routing freight through nearby countries.

Banks and US authorities have worked harder to limit this during the most recent period of transactions. And it has proven very difficult for players to acquire credit if banks believe it will be used to buy from Iran.

Both PP and LLDPE imports from Iran have fallen significantly. There was a small improvement in HDPE numbers, however. Both Iran and Egypt appear to be benefiting from buyers’ preference for quicker delivery times during this period of economic uncertainty.

New HDPE capacity from Uzbekistan has also moved it ahead of South Korea, probably benefiting from shorter delivery times.

900% RISE IN US IMPORTS

US origin LLDPE is the starkest shift, with a nine-fold increase.

Iran and exporting countries in Asia appeared to have lost out due to the aggressive introduction of material from expanded US capacities. Saudi Arabia maintains its position as the largest importer of PE and PP into Turkey and even improved it’s LLDPE and HDPE numbers from 2017. It saw a massive drop of over 100,000 tonnes over the 2017 to 2018 period.

Egypt and Uzbekistan account for some of this, increasing their exports by over 50,000 tonnes. The rest is presumably from the contraction in the market due to economic woes and the effects of the plastic bag charge. Middle Eastern suppliers, despite holding most market share by far, found price levels dictated by discounted US PE in the second half of the year.

PE, on the other hand, was already abundant and even more production units are due to come online this year in the US and elsewhere. PP is likely to have benefited from Iran’s woes. PP will not face the same oversupply issues, nor any aggressive competition. There are no major capacity expansions in the coming year, leaving current market dynamics largely intact. Trade flows could continue to shift as global demand/ supply fundamentals shift throughout out the course of 2019. ■