Logistic concerns drive bullish Jan expectations in Türkiye’s PP, PE markets

Polyolefin markets seem prone to price increases for next month on the back of supply concerns triggered by the news that the Red Sea merchant shipping almost ground to a halt. The ongoing attacks on vessels amid geopolitical unrest in the Middle East have caused major carriers to change their routes while container prices and insurance premiums soared as a knee-jerk reaction.

Major shipping companies suspended their runs through the route as attacks on commercial ships heightened security concerns. MSC, Maersk, Hapag Lloyd, and many other freight forwarders decided to divert vessels away from the Red Sea and Suez Canal until safety was restored, while rerouting vessels via the Cape of Good Hope at the southern tip of Africa.

Data from Flexport Inc., a San Francisco-based digital freight platform, showed that about 180 container ships diverted around Africa or were stopped and waiting for instructions to avoid attacks in the Red Sea, with more to join, according to Bloomberg.

The recent disruption to the Red Sea traffic has wreaked havoc in a wide range of commodity markets, with ICE Brent crude futures hurtling toward the $80/bbl threshold.

Demand robust for prompt or nearing cargos

Polyolefin demand has been vivid since early December as more buyers seemed willing to benefit from multi-month low prices, saying that PP and PE have hit bottom. Netback calculations based on import prices in Asia drove slightly firmer expectations for January even prior to the Red Sea turmoil.

The recent jump in freight rates from Far East Asia reinforced stronger projections and markets turned more bullish on the sellers’ side this week. “Distributors have been shying away from replenishment activities due to demand concerns. We may see delays of around 2 weeks in deliveries based on the recent crisis while rising costs of containers will push PP and PE prices north. Meanwhile, South Korean PPBC producers withdrew their offers amid unstable costs,” a trader noted.

PE sellers reported rising inquiries from their customers. Players expect buoyant demand for prompt or nearing cargos to continue in the coming days. A distributor said, “We have sold out our HDPE materials at bonded warehouse in the last two days.”



Upward pressure mounts on PE prices

As for LDPE, the market has witnessed a “perfect storm” of bullish factors, including limited stocks for certain grades at the local producer, the absence of a Middle Eastern supplier in November and December, as well as possible delivery delays emanating from the recent logistic turmoil. The prompt market has already been climbing since the abolishment of the VAT discount right in late November.

Middle Eastern producers plan to lift their imports prices while the domestic producer, Petkim, is likely to sustain its bullish policy so long as demand stays encouraging. “Fresh offers may emerge around the low-$1000s/ton CIF Türkiye now that the market is almost trading at par with China, where sellers applied small increases this week,” opined a few players.

Middle Eastern prices were last assessed at $970-990/ton for LDPE, $930-950/ton for LLDPE C4 film and $970-990/ton for HDPE film CIF Türkiye, subject to 6.5% customs duty, cash. These ranges are subject to change once fresh January offers are revealed, possibly with increases month over month.

Players: Demand may limit upside for PP

Meanwhile, relatively healthy premium over China’s import market and concerns over demand may keep homo-PP hikes in check, as players put it. “PP fibre may fare better than raffia owing to diminished availability at traders. If sellers push for dramatic increases, this may deter buyers at some point,” a converter commented.

According to the weekly average data from ChemOrbis, Saudi Arabian PP raffia prices trade with around $70/ton premium over China’s import market, which can be considered a reasonable gap and supports projections for more modest gains.

Saudi Arabian PP raffia, fibre and inj. prices were assessed $10/ton higher week over week respectively at $940-960/ton, $980-1000/ton and $950-970/ton CIF Türkiye, subject to 6.5% customs duty, cash.

Medium-term concerns keep players on their toes

On the other side of the coin, both PP and PE markets have been edgy in response to the uncertainties for the coming term. Converters commented, “We expect sellers to capitalize on the recent crisis, taking their prolonged complaints about their poor margins into account. The duration of the crisis will be pivotal. On the other side of the coin, suppliers may deter consumers if prices soar rapidly since derivative segments have not signaled a recovery.”

Nonetheless, the unpromising demand outlook in the downstream markets may come to the fore again if the crisis cools off, which would eclipse sellers’ efforts to recoup their margin losses for PP and PE going forward.

If the situation lasts longer than hoped, global economies will face renewed inflationary pressures in the medium term, which would dampen downstream demand further. This scenario also points out that major central banks may have to sustain high interest rates in the coming months.