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Supply constraints, demand send Turkey PE market to 2-month high

by Merve Madakbaşı -
  • 05/06/2020 (03:45)
Turkey’s PE markets opened June on a strong note as the lifting of virus-led restrictions across the board combined with surging upstream costs were mirrored in post-holiday pricing policies. Traders reported limited allocations from their suppliers while dwindling prompt availability kept buying sentiment alive.

Middle Eastern producers pioneered June increases

The sentiment already reversed in the second half of May as traders attempted for hikes pointing to rising crude oil futures. According to ChemOrbis Price Wizard, global crude oil benchmarks have recently hovered around 3-month highs on a weekly average.

This was mainly propelled by an optimism triggered by the gradual resumption of China, where economic data improved after the country battled with COVID-19 pandemic in the first quarter. Several nations in Europe and Southeast Asia followed suit, while Turkey lifted restrictions on June 1.

Demand outlook for oil recovered consequently, while production cuts by OPEC+ in May also helped upstream chains to pare their huge losses.

A Saudi Arabian major started to seek $50-70/ton increases at the beginning of this week, which was followed by other Middle Eastern suppliers shortly after. A source from a regional producer affirmed having very limited LDPE quotas and lacking of HDPE film for now. Buyers also confirmed, “We faced some delivery delays from the region for LDPE.”

Growing supply constraints led to renewed price hikes

Players reported reduced availability not only from the Middle East but also other supply sources since late May. Supply concerns mounted as June kicked off due to a series of factors as follows:

· Petkim faced production issues on ethylene shortage in May
· Material flow from Iran was disrupted for weeks due to pandemic
· European sources started to focus on domestic sales more
· Korean suppliers were already sold out for June
· Deep-sea cargos were attracted to Asia on rising consumption

Most Middle Eastern producers delayed their fresh price announcements until after the Eid al-Fitr holiday in response to bullish feedstocks on a global scale and improved buying appetite in Turkey. According to ChemOrbis data, the recent prices indicated 5-8% ($40-60/ton) gains from pre-holiday week.

Once new offers started to be unveiled with visible hikes as widely expected, it became evident that regional producers had limited allocations for particular PE grades. This was mainly due to their satisfactory sales to China which brought COVID-19 under control earlier than other countries.

The domestic producer Petkim applied a cumulative increase of $60/ton for this month amid its reduced stocks on hand, reinforcing LDPE tightness recently. The company experienced a production issue back in May which affected its polyolefin operations for up to 10 days, as players reported to ChemOrbis.

LLDPE supplies were already limited during the last couple of months since a lack of material flow from Iran affected availability of materials without additives, in particular. Now that Turkey opened border gates with Iran on June 4 in the scope of normalization process, players are curious about whether or not supplies from the country will ease soon.

The scarcity of South Korean offers came to the forefront as the country ranks among top HDPE exporters of Turkey. “Korean sellers were unwilling to give much material after they withdrew their prices from the market in H2 May. They blamed their lack of quotas for June following increased sales with better netbacks to China where demand has been healthy,” a converter stated.

A pipe maker also said, “Middle Eastern and Korean HDPE 100 sellers allocated small volumes amid 4-high month high ethylene prices in Asia and good demand from Chinese converters amid economic incentives for the substructure industry.”

Turkish buyers have hardly heard US PE offers so far this week. A global trader raised his notional American offers to $800/ton CFR Turkey, cash, saying, “Our supplier will not be able to ship LLDPE and HDPE before early July in the best scenario. The rising costs in the US coupled with PE hikes from the Middle East paved the way for higher US PE offers.”

European LDPE and HDPE prices were quite rare as well following higher June ethylene contracts in the region. “We received expensive LDPE prices and it seems regional sellers are not interested in selling to Turkey now that European markets have reopened,” commented a buyer.

Prices reached back up to late March levels

ChemOrbis data reveal that the overall import PE markets in Turkey were up by 7-9% ($53-76/ton) when compared to pre-holiday levels with the larger gain standing for LDPE amid tighter supply.

The weekly average data suggest that the market is now carrying a premium of $25/ton for LDPE, $35/ton for LLDPE and $40/ton for HDPE film over China’s import market, as a side note.

The near term outlook continues to be firm so long as production costs remain at or close to their prevailing levels and supply restrictions do not find an immediate relief. The end demand outlook appears to be promising amid signals for satisfactory orders from industries of disposables, healthcare goods, shopping bags and food packaging.
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