Weak Turkey adds woes to Europe PE market as China tariffs come into effect

23 August 2018 12:53 Source:ICIS News

LONDON (ICIS)--The ailing Turkish polyethylene (PE) market is leading to concerns over fresh imports into Europe as China's 25% tariffs on US product came into effect on Thursday.

- Turkish players pessimistic as lira plunges against US dollar

- Traders with PE heading to China trying to offload in southeast Asia 

- US PE wave to prompt European sellers to fight their market share

Turkey is on holiday this week, but is still reeling from the weakness of the lira, and the inability of PE buyers to buy what they need.

“The situation is very very bad,” said a trader.

“From 1 January until today the devaluation is enormous – around 50%.”

On 1 January, the Turkish lira (TL) was trading against the US dollar at $1:TL3.8.

On Thursday morning, the rate stood at $1:TL6.06, after recovering some losses posted earlier in August.

Some offers had been made from Turkey into Europe as local buyers had difficulty with high prices, but some buyers expected this to continue into September as new tariffs on US material into China came into effect.

One large high density polyethylene (HDPE) buyer had already diverted material from China, it said, as to accept a 25% increase to the price made business not viable.

Another large buyer in Europe said it had already received offers of diverted material, or discreet offers of US material that was initially destined for China.

“The volume [into Turkey] is going down dramatically, and there is very limited business compared with past years … The duty on HDPE from US is driving all cargoes to European ports,” the buyer said.

A producer agreed, arguing that what happens in Turkey in coming months will be key for other European markets.

“Imports [into Turkey] will be slashed. What’s happening in Turkey could lead to other routes to Europe,” said the producer.

Not all sources in Europe expected an immediate impact on the implementation of tariffs on US PE into China, but there was already an impact in Asia.

Several regional and Chinese traders were actively trying to offload US-origin HDPE film, HDPE injection and linear low density polyethylene (LLDPE) film grades to southeast Asia, in turn leading to downward pressure on Asian prices.

Clearly there will be new trade flow routes as the situation evolves, and some sources said they expected things to calm down once these routes had been established.

Nobody can get away from the fact that a lot of new PE capacity is coming on stream in the US, and this capacity will have to find a home.

“We have already seen signs that sellers in Europe are not willing to lose volume to new importers,” said one of the buyers.

This was the case when a relatively small parcel of imported linear low density polyethylene (LLDPE) from a new US plant was brought into Europe in March/April this year.

It soon became clear that local sellers were not willing to lie down and let their market share be taken.

As a consequence, prices fell.

PE is used in packaging, the manufacture of household goods, and also in the agricultural sector.

Pictured: Turkish lira banknotes
Source: Jason Langley/imageBROKER/REX/Shutterstock

Focus article by Linda Naylor

By Linda Naylor