Price and market trends: Turkey PE, PP demand lull to last through March

07 March 2014 10:50 Source:ICIS Chemical Business

Buyers in Turkey have had credit lines limited or halted altogether by banks as the lira weakened against the US dollar

The current weak demand seen in the Turkish polyethylene (PE) and polypropylene (PP) markets could last throughout the month of March because of upcoming elections and as the Turkish financial year comes to an end, sources said on 26 February.

Several market sources added the end of the financial year in Turkey to the list of uncertainties currently impacting polymer demand in the country. During this time, banks will review credit limits based on the financial performance of customers, and will extend or limit them accordingly.

“30 March is important for financial side and important for the banking system, [for] updating their credit lines according to customers’ balance sheets,” a trader said.


Decline in the Turkish lira has caused turmoil

Copyright: Rex Features

Buyers in Turkey have already had credit lines limited or halted altogether by banks as the lira weakened against the US dollar, so the outlook for the new financial year is not clear.

“Expectations for March are that prices will be stable to slightly softer due to various opposite factors,” a Turkish trader said, including “liquidity/money collection problems in Turkey” as a reason for low demand and stable-to-soft pricing.

“What can I tell you is… [the] market seems stable to soft due to low demand that related with some internal uncertainty in Turkey,” a large PE buyer said.

Following the sizable drop in the country’s currency against the US dollar in 2014, many end-use consumers adopted a hand-to-mouth buying pattern in the hope the currency would stabilise and the market would return to normal, especially after the increase in interest rates announced by the Turkish Central Bank on 28 January. To date this has not happened, and the currency remains volatile.

Political issues in the country have not helped the lira’s weak position, and many players in the market said the country is waiting for the regional elections on 30 March, and whether the outcome of these elections may go some way to restoring confidence in the Turkish domestic market.

“The demand is extremely low – it will be low till the election,” a second PE buyer said.

Until then, producers are being cautious and keeping prices mostly stable, but face pressure from buyers who want lower prices because of weak demand.

“Prices are stable in some cases, in some cases it’s down $20/tonne because demand is not quite good and the elections [are coming], and [because of] the volatile currency,” a producer said.

“We’re pushing them [producers] to decrease [prices] because there is no demand. But in my opinion, they will pass the price as the same – announcement [will be] a rollover,” a large buyer said.

A trader in Turkey added: “Players mostly concur that 
further decreases are on the horizon for PE given the globally weak picture.”

A potential problem rising out of the current market uncertainty could be a lack of stock within Turkey. Many end-use consumers have been running off of inventories and taking prompt parcels to meet manufacturing needs, but all the time keeping inventories low.

If there was to be a sizeable recovery in the Chinese market, for example, and producers decided to send more material to Asia because of favourable netback opportunities, Turkish buyers could find themselves left short.

“The traders do not have too much material because of the complicated situations in Turkey,” the second PE buyer said.

However, some people see PE as more available than PP, with weak demand in Europe while players waited for the European March ethylene contract price settlement causing suppliers to send increased volumes to Turkey. The March ethylene contract settled on 25 February at a €20/tonne reduction.

Speaking on the PP market, a trader added: “In my opinion, distributors have low stocks. Some signs of stabilization… have arisen this week in China, which may support sellers in their efforts to hold the market steady in Turkey.”

Chinese prices for both PE and PP dropped the week ended 21 February as the market there waited for a pick-up in demand, though suppliers may still prefer prices in the Chinese market over Turkey.

With almost all sides in Turkey agreeing on the opaqueness of the current market, for some at least, April cannot come soon enough.

By Matt Tudball