OUTLOOK ’20: Turkey PE, PP shifting supply dynamics crank up uncertainty

Ben Lake

09-Jan-2020

LONDON (ICIS)–2019 proved to be a mixed year for Turkish polymer players, with prices reaching lows not seen since the 2008 economic crash for both polyethylene (PE) and polypropylene (PP).

At the same time, import levels have begun to recover from an unexpected fall seen between 2017 and 2018.

Demand levels were mostly flat, and in the second half of the year buyers steadfastly refused to purchase more than their basic needs.

Even traditionally busy periods have had little effect on consumption.

There is little reason to expect this to change in the coming year.

The Turkish lira appears to have stabilised at current levels, but is substantially lower than it was in 2018.

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Combined with President Erdogan’s combative nature in the international arena, uncertainty dominates the market and political strife is never far away.

Aside from the political situation, the oversupply of PE will be a major concern for sellers going forward.

Unless there is progress in negotiations between the US and China, US volumes will continue to flood the market.

The primary focus for US producers will be to maintain cash flow, as many will need to service the investments made when they first expanded capacity.

As such, they are unlikely to cut production rates.

US sources believe that they can continue to push prices down from current levels. This will put pressure on naphtha-based and non-integrated producers in other regions – while also ensuring that supply retains length.

PP production greatly increased in 2019 (as can be seen in the graph below), after several new plants began operating in Asia.

Although these volumes may not be directly offered into Turkey, they are likely to displace Middle Eastern product.

The Middle East is currently sending substantial quantities of PE to Asia, due to the ongoing US-China trade war, which has limited US exports to China.

Source: ICIS Supply and Demand Database

Shorter global supply helped to support PP prices in 2019, especially during the traditional high seasons.

Shifting trade dynamics have, perhaps, a larger influence on the Turkish market than most others because of its politics, fluctuating currency, reliance on imports and geographical location between Europe and the Middle East.

ICIS Editorial Chart goes here
Most players expect another complicated year ahead, with demand continuing to outstrip supply.

However, even if demand picks up on a global level – it is likely to remain constrained in Turkey – as it was before the global downturn.

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