OUTLOOK ’16: Turkish PP, PE markets facing challenges, uncertainty

LONDON (ICIS)–It is hard not to feel sympathy for participants in the Turkish polypropylene (PP) and polyethylene (PE) market, who were subjected to economic and political uncertainty within Turkey while being hit by crude oil volatility, supply shortages, regional conflicts and falling exports throughout 2015, leading to a rollercoaster ride in terms of pricing.

And the less than encouraging news is the situation does not appear to be showing much sign of improvement for 2016.

While some of the issues around the country’s political situation have been resolved with the election of the Justice and Development Party (AKP) back into power in November last year, the economy, and the Turkish currency, the lira, failed to pick up as some in the market had hoped.

On 4 January 2016, the Turkish lira sat at 2.97 against the US dollar, the weakest level since mid-December, and nowhere near the 2.28 levels in January 2015. During the course of last year it reached a record low of 3.05 to the dollar in September, with only a small recovery seen since then.

(source: XE.com)

Turkish demand ended in 2015 at low levels because of the weak currency. Traders purchasing material in US dollars struggled to sell to buyers in lira, and were increasingly finding it hard to collect payments from some customers, who were in turn being hit by weak exports.

PP in particular suffered from drops in exports of finished goods to key markets in Syria, Iraq and Russia. While exports to Saudi Arabia were still good, overall exports of finished goods dropped by around 11%, according to one trader in Turkey.

Increasingly, sources involved in the Turkish market have also been talking of some businesses in Turkey struggling to meet their payment terms, while some suppliers are moving more towards a cash in advance or cash on documentation basis in order to ensure the goods being delivered to buyers will actually be paid for.

Sources have even said some Turkish businesses have been forced to declare bankruptcy but for the time being, such cases have been very few and far between. 

Recent tensions between Russia and Turkey following the downing of a Russian jet over Turkish soil by the Turkish air force in November 2015 have soured relations between Ankara and Moscow, which market participants believe will not be resolved until at least the second half of the year.

There was some positive talk among participants at the 25^th Plast Eurasia fair held in Istanbul from 3-6 December about encouraging signs cautiously emerging from the Iraqi market, but it waits to be seen if anything comes of this for Turkish finished goods exports.

Feedstock and upstream costs will be a main driving factor for the Turkish market, as well as price and demand trends in the Asian market. Crude oil prices remain below $40/bbl at the beginning of 2016, and propylene producers continue to enjoy healthy margins.

Both Turkish PP and PE buyers will continue to watch the Asian market closely for price direction, and for demand levels, though with the Lunar New Year holiday in early February, buying interest in Asia is already slowing.

There may also be a shift in the way material, particularly PE, is supplied to Turkey in 2016 with US material already appearing more prominently in the Turkish market towards the end of 2015.

With an estimated 9.2m tonnes of PE production capacity coming online by the end of 2018 in the US, it may become a regular if not key supplier to the Turkish market in light of softer Asian demand levels.

Similarly, the world is waiting to see what will happen once Iranian sanctions are lifted and Iranian suppliers can export to a wider customer base. Iran was the third largest PP supplier to Turkey in 2015 behind Saudi Arabia and Egypt, but with poor demand levels in Turkey, some Iranian producers have been sending material elsewhere. If European prices remain high, there could be some shift in allocation from Turkey to the EU once sanctions are lifted.

Several Iranian suppliers expressed interest in the Italian, Spanish and Belgian markets at December’s Plast Eurasia, with one seeing up to 20-30% of its exports destined for Europe post-sanctions. Iranian producers stressed they would not be turning their backs on Turkey, which is still a key regional export market for them.

However, the underlying sentiment for 2016 in the Turkish PP and PE market is one of ‘wait and see’. Buyers are reluctant to purchase stock because of lower crude oil, feedstock and Asian prices, but also because in some cases they simply cannot afford to do so.

Sellers are finding the lack of demand in Turkey off-putting, with some suppliers actively seeking out alternative markets for their materials for 2016, which could, in the worst case, lead to a shortage of product and subsequent hike in Turkish prices but at least that may attract cargoes back to the country.

Some producers believe buyers’ stock levels are low, and one PP producer believes this lack of inventory will actually lead to a firming in prices in January. A second PP producer, however, has kept its prices stable for January in order to not disturb a currently unpredictable market.

Despite its seemingly ongoing turmoil, Turkey is still felt by many to be an attractive market for polymers, and hopes are that the current bearish sentiment is short-lived and a stable political environment will lead to an improving economy later in the year.

By Matt Tudball