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PP, PE expectations take shape amid divergent factors in Turkey

by Merve Madakbaşı -
  • 22/01/2021 (10:15)
Turkey’s PP and PE markets retained their bullish trend in January bolstered by supply limitations. Meanwhile, PE recorded more sizable hikes compared to PP due to several reasons. The focus has turned to February recently with players voicing their expectations.

Factors that have shaped projections were as follows:

•   Buying appetite slowed for certain products in H2 Jan

•   Supply from the Middle East, Asia remained limited

•   Freights prevented exporters from taking advantage of the arbitrage to Turkey

•   European markets surged on tightness versus a volatile pre-holiday view in China

PP mostly stabilized at multi-year highs on calm demand

This week, import PPH prices were mostly stable as the growing premium over China kept converters on their toes and limited the activity. The pressure on PP raffia was more visible as the emergence of competitive Turkmenian offers coupled with low sack season caused buyers to remain sidelined.

According to the weekly average data from ChemOrbis Price Index, Turkey’s premium over China’s import PPH market stands at an all-time high of $260/ton nowadays. Needless to say, part of this bubble comes from tripled freight rates across the board in the last months.

On the other hand, PP fibre preserved its strength at its prevailing high levels in the wake of fewer supply sources. The buoyant non-woven demand also provided support to this market.

Import PP raffia prices hovered at their highest levels since July 2018, while fibre was at around 3-year high, the weekly average data from ChemOrbis suggested.

As for February, the scheduled turnarounds in Saudi Arabia for March as well as over-rated freights are likely to hold the market at or close to the current levels. PP fibre is particularly drawing a firm picture amid a lack of stock pressure on traders’ side. Yet, weak demand and comfortable prompt supplies will continue to weigh down on raffia.

“PP raffia leveled off in the last couple of weeks in response to waning buying appetite from end product markets. Still, we don’t think producers will approach Turkey with price cuts for next month despite the holidays in China. They may continue to count on modest supplies from the Middle East and Asia,” participants opined.

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

Further hikes are seen likely for certain PE grades

The PE sentiment was mixed since supply-demand dynamics diverged depending on the product. Expectations for February mostly hinted at a steady to firm trend despite already tempting netbacks in Turkey since supply from the Middle East remains limited. Meanwhile, demand has been quiet with most buyers opting to go to the sidelines ahead of fresh offers.

A few Middle Eastern producers have already voiced their intentions to lift their prices in February regardless of Turkey’s growing premium over China. A planned maintenance in the region for the new month and the ongoing container shortage are likely to keep availability modest, while the size of possible increases is unclear for now.

The market continued to lack US PE offers with some traders saying, “We do not expect to hear much volume from the USA in the near term. Freight rates remain inflated since logistic issues persist.” Furthermore, European LDPE cargos have been scarce amid a run-up in the region triggered by tightness. Indeed, several European producers closed their order books for January with expectations calling for higher ethylene contracts and 3-digit hikes for another month.

Limited imports may drive additional gains for LDPE, while LLDPE also hints at supply-driven gains. On the other hand, comfortable supply and tepid demand may curb any bullish attempts for HDPE.

According to ChemOrbis data, Turkey carries a 6-year high premium of $148/ton over China for LDPE film, while HDPE’s premium has hit a 12-year high of $198/ton on a weekly average. Import LLDPE C4 film trades $181/ton above China, indicating the highest gap since May 2012.

Sky-high freights support markets for the near term

Although the market offered juicy netbacks when compared to Asia, inflated freights and a lack of equipment prevented exporters from taking advantage of the arbitrage to Turkey.

Players will remain on a knife edge next month while most of them concur that logistic mishaps will hold the markets until late February or March. “The polyolefin markets may see downward corrections after that in case China does not revive immediately following holidays and freights start to come down,” said a trader.

Eyes remain on possible impact of New Year holidays in China

How will demand evolve in the post-holiday period in China remains a key factor to watch for Turkish players as it will play a role in the setting of global trends in the medium term.

Polyolefin markets of China showed a slight uptick this week boosted by stocking activities prior to the New Year holidays that will take place in H2 February. The recent gains in Dalian Commodity Exchange (DCE) market and lower local stocks also lent some support to the scene. Still, the re-imposed COVID-19 restrictions in some cities near Beijing cloud demand outlook until after holidays.
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