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A look back at Turkey’s PP, PE markets in 2021: Logistic hurdles, depreciating lira give players a rough ride

by Merve Madakbaşı - mmadakbasi@chemorbis.com
  • 17/12/2021 (08:51)
Polyolefin markets faced quite tough times throughout 2021. Industry players tried hard to cope with prolonged shipping bottlenecks across the board, inflationary pressures, and spiking utility costs. Adding to the upheaval has been the continuous depreciation of the Turkish lira against the USD and euro.

Prices saw meteoric increases in February and part of March, with PP increases surpassing those of PE amid panic buying and fewer supply sources. As for PE, a lack of American cargos pervaded the markets until LDPE and LLDPE volumes started to emerge in early Q4.

PPH hits highest levels on record in March on short supply

Turkey’s PP markets faced tremendous hikes in the first quarter of 2021. In March, a severe shortage and pent-up demand sent homo-PP prices to their highest levels since ChemOrbis started to compile data in 2008. Saudi Arabian PP raffia and fibre prices breached the $1900/ton and $2000/ton marks, respectively in early March. This was right before the rally ground to a halt in April amid a Ramadan lull, the nearing Eid al-Fitr, and easing availability.

PP flow from China leads to corrections in Q2 2021

In Q2, prices started to see downward corrections after hitting surreal levels as a flow of Chinese PPH cargos weighed down on sellers. Massive capacity additions in China coupled with tempting netbacks attracted bulky volumes from the country to Turkey.

The pressure from Chinese supply was more intense than it had been in Q2 2020. Turkey imported a total of more than 1,200 tons of PPH from China in Q2 2021 as compared to less than 300 tons in the same period of 2020.

Middle Eastern PE hits multi-year highs on rising freights in late March

PE faced a spillover impact from PP in mid-Q1 when price hikes gathered speed. This was also when delivery delays started to pervade the markets, with Middle Eastern volumes being particularly reduced on shipping backlogs.

LDPE and LLDPE C4 film offers from the region reached the highest levels since September 2008 as they neared the $2000/ton and $1700/ton thresholds, respectively on CIF Turkey basis. HDPE also hit around a 7-year high and breached $1600/ton before prices for all grades reversed course in late March-April.

During the bullish run, LLDPE shone out as a lack of US cargos led to tighter availability for this product and caused prices to jump by almost $400/ton in February. The US petrochemical production was shut due to freezing storms, which knocked out power to multiple petrochemical hubs in Texas in mid-February. This followed shutdowns and force majeure declarations in the aftermath of a heavy hurricane season in Q4 2020. The absence of US suppliers ended by October when sellers resumed offering LDPE and LLDPE to Turkey amid the approaching year-end.

Import Prices – CIF Turkey – PPH– LDPE – HDPE – LLDPE

Full Covid lockdown dimmed resin consumption in April-May

The sentiment in Turkey’s polyolefin markets started to falter in early Q2 mainly due to concerns over a new wave of the Covid outbreak. A full lockdown was imposed from April 29 to May 17 by the government in an effort to combat the rising infections. Needless to say, falling consumption exerted pressure on polyolefin prices at a time when markets already started to taper off due to the holy month of Ramadan.

Both markets were on a weak footing throughout the second quarter before they bottomed out in summer. PP defied the impact of cautious demand ahead of the Eid al-Fitr holiday in July and stabilized in June, while PE followed suit in July.

PP and PE prices maintained an uptrend from August to October. In early Q4, however, PP pioneered downward adjustments from sellers, who yielded to growing resistance from converters amid slowing end business, particularly in the carpet industry. The weaker PP trend found a reflection on PE sentiment, with prices shifting down in December. The downturn stemmed from a slew of factors including a blurry economy amid volatile parity, the traditional year-end lull, and the low winter season for several end applications.

Overheated shipping costs take center stage from June to October

In 2021, the persisting container issues continued to take their toll on resin deliveries for the second successive year across the board. Indeed, logistic snarls altered the balance of global polyolefin markets since the pandemic burst out around 2 years ago, prompting more countries to hold onto their domestic supplies instead of exporting them.

The freezing storms in the US back in February were followed by a blockage of one of the busiest trade routes in the world, the Suez Channel, which led to a build-up of more than 100 vessels, forcing global shipping operations to grind to a halt in late March. Soaring shipping costs and severe delays continued to impact supply chains and resin prices in the following months.

Although global markets grappled with a dearth of supply, Turkey has been hit by logistic disruptions more visibly with respect to Europe and Asia mainly due to its dependence on imports, particularly for PP and LLDPE.

Freight rates posted successive increases during most of 2021 before they reached the peak in September and signaled a relative easing starting from October. Nonetheless, shipping costs stayed well above pre-pandemic levels and container issues are likely to be extended into Q1 2022, according to analysts. This is considering the fact that the new Omicron variant of Covid has already dented operations at some ports of China and disrupted inland transportation in the US.

Turkey drifts apart from China trends

A container shortage across global commodity markets remained a source of concern and upended the balance of markets throughout 2021. The freight turmoil led to abrupt increases in Turkey’s resin markets in Q1 and Q3, hindered smooth exports from Asia to Turkey, and also hit goods exports of manufacturers. Turkey has been hit the hardest by the global logistic turmoil among many markets given its large dependence on imported raw materials.

China’s high export performance, as well as domestic capacity additions particularly for PP, HDPE, LLDPE, kept price hikes relatively in check as compared to Turkey and Europe, however, This was because carriers were willing to send empty containers back to China to be filled with more profitable goods.

The notable freight difference with China kept Turkey’s import PP and PE markets well above this major market during the whole year. Turkey’s premium over China’s import market reached as high as $680/ton for PPH raffia in March, ChemOrbis data revealed, while the premiums of HDPE film, LLDPE C4 film, and LDPE widened to $440/ton, $490/ton, and $415/ton, respectively.

Markets come to a deadlock as lira nosedives against USD in Q4

The depreciation of the Turkish lira against its peers gained momentum toward the end of 2021. As of around mid-December, the US/lira parity has appreciated from 7.43 in early 2021 to slightly above the 15 mark in mid-December, a massive increase of around 102%.

The steep depreciation and high volatility of the local currency caused many PP and PE converters to suspend the sales of their goods starting from November. As the end of December draws closer, the fluctuating lira has dimmed the balance of payments, with resin converters who serve the domestic market having a hard time coping with cash constraints.

What will Q1 unfold for PP and PE markets?

Players project further price cuts moving into the new year, saying that January PP and PE offers may mirror the adverse impact of the weak lira on demand. Nonetheless, decreases may lose some steam, traders believe, in case buyers return to meet their requirements at some point.

“Converters may resume buying once they become convinced that the bottom is near. The markets may stabilize or even rebound by February with the help of the nearing season and a possible recovery in exports of goods following the Christmas holidays. On a global scale, the impact of the new Omicron variant on economies and the trajectory of logistics will be key factors to monitor in the medium term,” opined a global trader.

Plus, whether or not Chinese polyolefin buyers will be involved in pre-buying activity before the New Year holidays appears to be another factor to keep an eye on, according to some players. “If demand picks up in China, this may help the sentiment recover in Q1. Meanwhile, the export material flow from the US, Asia, and Europe to Turkey should also be tracked next month,” argued a player.
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