Mideast security threats weigh on Turkish polymer demand

ISTANBUL (ICIS)–Turkey’s demand for polymers has been sluggish since mid-year and may not recover soon amid security threats posed by the geopolitical instability in neighbouring Middle East and a recent crisis with Russia, industry sources said on Friday.

The Turkish military shot down last week a Russian fighter jet over an alleged violation of Turkey’s airspace near Syria, where Moscow is launching airstrikes against Islamic State of Iraq and Syria (ISIS) rebels.

“The [downing of Russian fighter plane] is just one of many security concerns in Turkey. The poor security is definitely a factor behind all the bearishness we are seeing,” said a Middle East polypropylene (PP) supplier that sells to Turkey.

The incident might further escalate tensions between Turkey and Russia and exacerbate an already fractious security situation in Syria, industry sources said.

“The crisis with Russia – everyone has focused on this,” a Turkish trader said.

Russia responded to the incident with a raft of sanctions against Turkey, including restrictions on imports of Turkish fruits and vegetables. 

Amid these security concerns, Turkey has been “a disappointing market [for polymers] in terms of netbacks” for most of 2015, the PP supplier said.

The country’s import prices for polymers had slumped by more than 20% over a four-month period from May to August, before somewhat stabilising in September, when Turks marked the Muslim holiday of Eid-ul-Adha or Festival of Sacrifice. (Please see price graph below)

On 3 December, PP raffia prices in Turkey were assessed at $970-990/tonne CFR (cost and freight) Turkey; while high density polyethylene (HDPE) film prices stood at $1,160-1,180/tonne CFR Turkey, according to ICIS data.

Current PP raffia and HDPE film prices in Turkey are lower by more than $200/tonne from the highs hit in May, when supply was short due to supply force majeures in Europe.

In October, Turkey had the worst terror attack in its modern history as ISIS-affiliated suicide bombers killed 97 people in city capital Ankara, dealing a blow to sentiment in the polymers market.

Meanwhile, internal skirmishes between the country’s military and outlawed Kurdistan Workers’ Party (PKK) in southeastern Turkey, near the border with Iran, are also ongoing.

PKK rebels, which are fighting for an autonomous homeland for the Kurds, have been disrupting flows of imports like polymers into Turkey from neighbouring Iran. Because of this, Turkish converters have had to incur higher costs in transporting polymer imports, industry sources said.

Turkey typically gets its polymer imports from Europe, Saudi, Qatar, UAE and Iran.

Apart from the increased cost, Turkish buyers and traders face difficulties in securing drivers to bring cargoes across the border from Iran and into the key PP hub of Gaziantep in southern Turkey.

The country located in southeastern Europe is a key buyer of Iranian polymer cargoes, given their proximity, but in recent weeks, availability of PP out of Iran has declined because of upstream production problems.

“The problem with feedstock in the south of Iran persists and there is no availability,” an Iranian producer said.

Iranian and other Middle Eastern polymer players had in recent years faced stiff competition in Turkey, which has drawn in a host of suppliers and distributors seeking a share of its large plastics conversion base.

Turkey is a major plastic conversion hub and manufacturer of finished petrochemical goods sold to Egypt, Russia and the UAE.

Sentiment in the polymer import market is further being battered by the heavy depreciation of the Turkish lira against the US dollar. From June to date, the lira has shed nearly 8% of its value against the US dollar.

Polymer buyers have turned cautious in procuring dollar-denominated cargoes, which get more expensive every time the lira depreciates, industry sources said.

“Many economies are facing currency depreciation and Turkey is no different. This is causing many to relook their buying strategy,” a Dubai-based trader said.

Some market players raised concerns about political instability, with Turkish President Recep Tayyip Erdoğan being probed for a 2013 corruption scandal involving government ministers.

“[Because of the] political unrest, the economic situation and winter conditions, demand [for polymers] is lower. On top of this list is the crisis with Russia, and the lira is losing value against the US dollar [as a result],” a Turkish trader said.

In November, Turkey’s ruling Justice and Development Party (AKP) won a critical parliamentary election, regaining the majority it lost in June.

Industry sources are hopeful that Turkey will eventually be able to improve the security and economic climate and stabilise the lira, with AKP back in power.

Another Turkish-based trader said it hopes to see some improvement in the economy towards the end of the first quarter of 2016 or early second quarter.

“[There have been] no changes post-election [so far], demand is very limited, but also supply,” a producer of PP raffia selling into Turkey said.

“Demand is mediocre, but not exceptionally bad, but on the other hand it’s not good,” a separate Turkish trader said.

Focus article by Muhamad Fadhil and Matt Tudball

Muhamad Fadhil and Matt Tudball will be attending Plast Eurasia in Istanbul on 4-6 December