Turkish PP, PE spot markets bearish ahead of December

Focus article by Matt Tudball

LONDON (ICIS)–Political concerns, weakening currency, economic uncertainty and softening demand ahead of year-end are creating a bearish sentiment in the Turkish polypropylene (PP) and polyethylene (PE) as buyers look to limit stock and push for lower prices to mirror the recent downtrend in Asia.

PP spot raffia and fibre prices from the Middle East and Iran fell on Thursday as traders and suppliers reduced offers on the back of aggressive bids from buyers, and cheaper offers from Turkmenistan, India and South Korea.

However there are some gaps in the offers being heard, which is making the market more cautious.

“I am hearing a big discrepancy in prices on…homopolymer grades.  There are offers from Korean and Indian suppliers at the Saudi Equivalent price of $960-970/tonne [CFR (cost and freight) Turkey], but then I am also hearing much higher prices in the $1,020-1,040/tonne range. No one feels comfortable to make a decision at this point on homopolymer with such a wide expanse of offers on the market,” a Middle Eastern producer said.

Similarly, Middle Eastern LDPE and Iranian HDPE film prices softened on lower bids and offers, though the PE market does not appear to be under as much pressure as PP.

Demand is also slowing ahead of year-end as buyers and traders do not want to finish the year with large inventories for accounting purposes. A weak lira against the US dollar and problems around securing payments and cash availability within Turkey are also causing a slowdown in demand.

Some suppliers, such as Iranian PP producers, are now offering less and less material to Turkey and are focusing on other markets such as southeast Asia which currently are proving more attractive than Turkey.

Turkish buyers have continued their hand-to-mouth buying pattern that has become a constant throughout 2015 for various reasons, and now is due to the approaching year-end slowdown and falling prices in the Chinese markets.

Chinese PP prices in particular have seen large drops in recent weeks due to lower feedstocks giving more room for lower offers and weaker demand in the Chinese market.

“China is weak, so a lot of Saudi Arabian and Iran producers will want to push volumes [of PE] into Turkey, including South Koreans as well,” a Turkish trader said of the PE market.

Turkish buyers often look to China and Europe for indications of what to be asking from their suppliers, and the falls in China have given them extra confidence to enter the market with low bids.

Chinese raffia prices have already fallen below $900/tonne CFR (cost and freight) China Main Ports last week and show no real signs of improvement in the immediate future.

PP buyers have additional help in pressuring suppliers for lower prices from competitively priced raffia material being offered from India and Turkmenistan, and copolymer grades from South Korea. India and Turkmenistan import duty is 3%, and South Korean import duty is 0% for copolymer grades compared to the 6.5% from Middle East and Iran.

And with the European December propylene contract settling at a rollover, suppliers may struggle to find reasons not to reduce offers to buyers in Turkey if they want to make any sales before the end of the year.

PE prices have shown more resilience, mainly due to higher feedstock ethylene costs when compared to propylene. However, suppliers from the Middle East and Iran face competition from North and South American suppliers on grades such as HDPE blow moulding and injection moulding, where relatively new suppliers from across the Atlantic are now approaching buyers in Turkey with attractive offers.

While Turkish demand for both PP and PE is not necessarily strong enough for buyers to purchase large volumes or buy material from suppliers with long delivery times, just the fact that lower offers are available from alternative sources is giving buyers enough leverage to approach their traditional suppliers and demand lower prices.

Further compounding the bearishness felt by many involved in the Turkish market is the ongoing political issues both within Turkey and in the surrounding region.

While no immediate impact in the PP and PE markets was felt this week in the wake of the downing of a Russian fighter jet by the Turkish air force over Turkish soil on 24 November, some players in the market did wonder about the long-term consequences this may have on trade relations with Russia.

“With political unrest, economic situation and winter conditions, demand is lower. And on top of this list is the crisis with Russia,” one trader said, highlighting how the events of this week only add to an already long list of concerns facing the Turkish markets.

Russia, along with countries such as Iraq and Syria, is one of the key export markets for Turkish finished goods, especially PP-produced textiles, and any disruption in trade relations as a result of political tensions between Moscow and Ankara could hurt PP demand, sources said.

Players will now be watching for the European ethylene December contract settlement and waiting for December offers Middle Eastern and Iranian suppliers before starting their December price discussions.

They will be discussing price ideas and market outlook at the annual Plast Eurasia event in Istanbul next week, which runs from 3-6 December, and will also be looking to get a feel for the mood of the market for the rest of the year and into 2016.

Image of Ankara mosque by Richard Sowersby/REX Shutterstock