Price and market trends: Turkish PE, PP markets react to Iran sanctions news

06 December 2013 09:52 Source:ICIS Chemical Business

Some expect prices to rise as Iranian material gets diverted elsewhere. Obtaining insurance should become easier

Polyethylene (PE) and polypropylene (PP) players in Turkey have mixed views on the expectation of easing sanctions for Iran, with different opinions on how this will affect the Turkish market.


 Easing sanctions on Iran will alter trade flows

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Several Turkish market participants expect prices to rise if or when sanctions are eased, as supplies to Turkey of high density polyethylene (HDPE) and linear low density polyethylene (LLDPE) from Iran are already tight.

Iranian suppliers are already sending a lot of product to Asia because of better netbacks in the region, and easing of sanctions will open up other markets to Iranian suppliers, further limiting supply to Turkey.

“Now many traders are buying Iranian product and selling to China. I think that is one of the main reasons for the price increases in Turkey, especially in HDPE. The materials have dried up because of production problems and exports to China,” an Asian producer of PE and PP said.

“After the easing, I believe that the quantity [of Iranian exports to Turkey] will reduce, and Iran will send a huge [amount of] materials to other markets such as Europe and Asia, so prices will increase and availability will decrease,” a Turkish trader said on 29 November.

A positive aspect of any easing of sanctions will be in the way business with Iran is concluded.

“In the near future it will be easier [to do business with Iran] from before. The money transfer was always a problem but I think the banks will be loosening the rules of operations and of course it will affect the business volume positively,” a second trader said.

“When the sanctions are lifted, the process will be easier for Turkey. [Then] the product will be free [of trade restrictions], of normal origin, [which] means the handicap [of doing business with Iran] will be lifted and the price will go up. Iran will have more buyers,” a large Turkish trader said.

Transportation of product will also become easier. “Insurance companies were [previously] not willing to cover the insurance from Iran,” the trader said. But easing of sanctions will likely make it easier for carriers to get insurance for trucks bring product across the border.

Shipments of product by vessel will become an option for distributors, allowing for larger quantities of materials to be exported. One trader said that most business will continue to be done by truck unless the gap in prices between the two transportation increases by more than $20-30/tonne.

However, the amount of Iranian material available for export will be limited due to production problems in the country.

“The Iranian PP capacity is not much. PP is limited because there are some technical problems [in the country],” a trader said.

Previously, producers in Iran were not able to access materials needed to conduct repairs on facilities because of the sanctions, and their production capacity was reduced as a result.

“If they [Iranian producers] can get those [materials and parts] and fix those technical problems, then they probably could have more production availability, and this could have an impact. More production would mean more [material] for export so why would they increase the price?” a second major Turkish trader said.

Not all Turkish market participants think the impact will be that big, especially as the easing is only thought to be for a six-month period. “There will be some changes we think, but not a big impact in the short term,” one source said.

Others do not see any immediate impact.

“It’s [imports] clearly not going to happen tomorrow,” said a European PE producer. “If sanctions are lifted, I can’t see product arriving before several months.”

There were also questions over which products will benefit the most from the easing.

“I think it will be liquids, like methanol, crude oil and caustic soda, for example, that are more affected in Europe than plastics,” a trader said.

Whatever the outcome of the easing, it will take time to see the impact.

“It takes some time to see the effect of this political development. There must be some positive effect, of course, but too early to say something about that,” one Turkish buyer said.

Details of when the sanctions will be eased are still unclear.

“It has been mentioned that some sanctions will be “softened”, that more oil will be available, that petrochemicals and the transportation of petrochemicals will be excluded. However, to date not one of the major political entities that were enforcing sanctions... have published actual relaxations on their official websites – and until such a time as we have the written legal interpretation from each entity we cannot be sure of what exactly this means in relation to our business,” said Mark Mirosevic-Sorgo, managing director of the Singapore-headquartered shipbrokers Braemar Quincannon, writing in John Richardson’s ICIS Asian Chemical Connections blog.

He went on to mention the need for clarity in the sale, purchase and chartering of vessels for the transportation of cargoes including petrochemicals, and associated insurance details.

The Turkish market awaits further details of the easing, and to see the extent of the effect it will have on PE and PP exports to the country.

Additional reporting by Linda Naylor

By Matt Tudball