PLAST EURASIA 2023: Players discuss PP, PE outlook amid financial challenges

Global plastics players have gathered at the 32nd edition of Plast Eurasia Istanbul fair, which started on November 22. Weak downstream demand in Türkiye and global markets, low margins amid volatile costs, and cash flow issues were in focus, while players shared their cautious expectations for the upcoming term. The event will end on November 25.

Macroeconomic issues high on the agenda

A global trader reported, “Buying appetite was low during the first day of the fair. Most players tried to get a better clue about the upcoming trajectory, with the focus remaining on financial obstacles.”

Türkiye’s polyolefin markets have been on a bearish note as activity remained stagnant heading to the year’s end. PP and PE prices trended lower in response to competitive bids from converters, while adding to the weak scene were price cuts in other major markets.

Apart from sluggish downstream consumption and comfortable supply for Middle Eastern, Russian, and US origins, tight liquidity dimmed the buying appetite in the PP and PE markets further. Pointing to deeper economic challenges during the fair, manufacturers complained, “Our profits have been razor-thin for months now. The more consumption across the board is reduced, the more competition heats up in derivative segments.” Most attendees pointed to expensive bank loans as the main culprit behind the cautious activity.

The situation has caused several converters to run their factories at lower rates. According to data released by the Istanbul Chamber of Industry and S&P Global, Türkiye’s Purchasing Managers Index (PMI) for manufacturing stood at 48.4 in October, down from 49.6 in September. The figure remained in the contraction zone for the fourth straight month.

“Demand from the food and hygiene packaging industries has been a tad better than industrial packaging. Low orders keep PE purchases tied to basic needs, while some buyers postponed their inquiries to the industrial event,” a PE converter said. A stretch film maker added that the domestic end-product market has been under the shadow of tough competition between converters who are willing not to miss any customers.

Players voiced their concerns that some manufacturers mulled over ceasing operations due to unfavorable economics while banks may adopt a more cautious stance in providing loans to the players in the plastic industry given financial jitters. A player said traders have also been unwilling to provide long deferred payment options for customers recently.

Year-end lull weighs on December PP, PE projections

In terms of pricing, polyolefin players project that PP and PE may see further drops in late November or through December as sellers will need to deplete their stocks. Consumers will also prefer to close the year with minimum stocks amid the book closures.

Prompt Russian cargos may keep PP players well-fed considering that the carpet and sack industries mostly failed to enjoy the peak season this year. Aggressive US PE offers are likely to continue to find their way to Türkiye for certain grades in December, bearing traditional destocking activity in mind. The winter season may hammer demand for several applications derived from polyolefins further.

This week, Saudi Arabian PP raffia offers were assessed unchanged at $930-950/ton CIF Türkiye, subject to 6.5% customs duty, cash. Middle Eastern LDPE, LLDPE C4 film, and HDPE film prices were notionally stable to softer at $1000-1020/ton, $950-970/ton and $980-1000/ton, respectively.

Producers may keep discounts in check on margin concerns

Nonetheless, some players think that prices might be nearing the bottom while both PP and PE have limited room left for new drops. Petrochemical producers have been suffering from poor margins amid current costs, which may cause them to limit the size of decreases in the coming weeks.

According to the weekly average data from ChemOrbis, Saudi Arabian PP raffia prices on CIF Türkiye basis carried a premium of around $70/ton over import levels in China this week. The gap between the two markets also narrowed to around $50-60/ton for PE grades. “If China holds steady in the coming term, Türkiye may near the bottom and start to stabilize before turning up in January,” traders said.

While production costs continue to pressure producer margins, PP and PE makers may mull over applying deeper output cuts or prefer to conduct plant turnarounds if demand remains discouraging. This would prop up the markets and help PP and PE turn up toward or by January.

Indeed, analysts do not expect derivative consumption to revive much throughout 2024 as interest rates are likely to remain high. This may prevent a solid upside in upstream PP and PE markets in the medium term until tight monetary policies start to ease.