Turkish PP demand besieged by several factors

Focus article by Matt Tudball

LONDON (ICIS)–Polypropylene (PP) demand levels in Turkey are causing concern among market participants as they have failed to ignite after Ramadan because of several factors outside the market’s control, sources said this week.

“Demand is not strong for all [PP] grades, not only fibre. Traders are panicking and are reducing their price. Buyers know if they wait, they can find a better price,” a Turkish trader said.

One of the biggest concerns among traders is the current situation in neighbouring Iraq, where military action has seen significantly reduced trade with one of Turkey’s key export markets.

“PP is collapsing. The Iraq situation is effecting [the market] a lot [in Turkey], especially raffia,” a second trader said, adding: “the carpet industry is getting hit a lot”.

Traders and suppliers dealing with customer based in Iraq are finding they cannot get payment for materials already delivered, and orders that had been previously placed are not being collected, leaving suppliers with surplus stock and no cash payment.

Other countries in the region, such as Jordan, are also feeling the impact of the conflict on their exports.

Furthermore, products produced for the Iraqi market, such as carpets, are not easy to sell to other regions according to the second trader, creating a build-up of finished goods that end-use manufacturers cannot sell. 

And it is not just cash flow from Iraqi buyers causing problems in Turkey.

“[It is a] hard time connecting with our buyers. There’s a big problem about customers and their cash flow,” a source said.

“Mostly customers are trying to trader with us on a credit basis,” the source said, believing this to be a sign that there may be wider economic issues impacting its customers.

The lira has also weakened against the US dollar in recent weeks, dropping to 2.18 to the dollar – a level not seen since before the highly anticipated regional elections on 30 March, when the lira fell to record lows amid uncertainty of the outcome of the election.

“Also we are seeing the rates of LCs [letters of credit] are going up,” it added. Customers are now requesting up to 360 days of credit, and with no guarantee they can pay after that period expires.

In July, players believed the fasting holiday of Ramadan was causing slow sales, but the market should pick up after Eid. When this did not happen, some thought it may be the upcoming Presidential elections on 10 August that was dampening buyer sentiment.

But with the election come and gone and demand still low, market participants are getting worried.

“Ramadan, Eid, elections, all of them are over. We should see a pick up but we don’t see anything, [don’t see] any movement,” the second trader said.

“No one bought in the last two months, so they should be buying [now]. But no one is buying, and it’s worrying,” the trader added.

And it is not just traders seeing slow sales, on the production side there is also talk of low demand.

“Demand is low, and there is additional supply from Europe,” a Middle Eastern producer said as European suppliers take advantage of a stronger euro against the US dollar.

This is putting pressure on prices, with raffia prices as low as $1,580/tonne cost and freight (CFR) heard for Russian material, and $1,620/tonne CFR from the Middle East.

There are some in the market, however, who believe there is light at the end of the tunnel.

“Maybe September demand will be much stronger than the last two months because [the key fibre manufacturing] season will start,” a source said.

Its views were shared by a producer who is hoping to see some improvement from next month.

“People are expecting a slight decrease [in September prices]. They have been trying to push for the last month, but the prices have been maintained because of market tightness,” the producer said.

“Hopefully demand will go up again in September, as it is still a little slow after Ramadan, not as we expected after Eid… we hope to see September better than August,” it added.

Until then, though, homopolymer prices are falling and the market is very much in a wait-and-see mode until producers announce September prices from next week onwards.