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Turkey’s Nov PP, PE outlook shaped under shadow of the historic low lira

by Merve Madakbaşı - mmadakbasi@chemorbis.com
  • 22/10/2021 (03:36)
Turkey’s polyolefin markets are readying to close October on a firm footing as shipping bottlenecks and the upstream chain continue to underpin firm price levels. Nonetheless, the sharp devaluation of the Turkish lira to the lowest level on record against its peers spurred a gloomy outlook on the demand front for the upcoming term.

As can be seen from the Market Snapshot below, import Middle Eastern PPH and PE prices in Turkey have risen by triple-digit amounts during the past weeks. The markets have been on a bullish trend since mid-June when prices bounced amid soaring freight rates and pent-up demand.

*Right click the image and open in a new tab to view the full-sized snapshot.

Import Prices – CIF Turkey – PP Raffia – PP Fibre – LDPE – LLDPE – HDPE

Record-low lira/USD parity cushions trading activity

The majority of the market was on hold for the most part of this week in the midst of pending fresh offers from the Middle East and steadily rising USD/lira currency. Players adopted a waiting stance ahead of the Central Bank’s meeting on Thursday, which kept activity stalled both in PP and PE markets.

Following the bank’s decision to lower interest rates more than expected, the USD/lira parity tested above 9,45, while the euro/lira breached the 11 mark. Since October started, the USD and euro have gained 7% against the Turkish lira.

The lira has depreciated by 27% against the American dollar since 2021 kicked off, while it shrank 21% versus the euro in the same period.

Polyolefin sellers admitted, "Inquiries have not been many since last week as the constant fall in lira led to economic woes on the side of consumers, who buy resin on a dollar basis but sell their goods on a lira basis. The rising USD has tightened cash flow in commodity markets."

Another factor that kept price discussions thin over the week has been a lack of clarity about new PP and PE offers for next month. Plus, some players left the market to attend the Eurasia Packaging Fair that takes place on October 20-23, 2021 in Istanbul.

PP set for a “tug of war” amid buyers’ resistance, supply constraints

Import PP hikes have lost steam as wavering demand has led to rollovers to smaller gains when compared to previous weeks. The steep depreciation of the Turkish Lira, inflated prices, and mediocre end markets curbed the buying appetite for fresh material.

More offers have emerged from nearby Europe and South Korea, although not necessarily at aggressive levels. Players interpreted the emergence of these origins as a reflection of juicy netbacks in Turkey.

Some sack makers are working at half capacity despite the high season, while carpet manufacturers cut rates to 30-40% in response to low export orders. “Overall activity is calm amid slow end sales and tight cash flow. Parity issues affect purchasing power adversely, while tight availability holds the market,” a seller said.

Going forward, expectations call for a rather stable trend in November. Supply chain disruptions will continue to support the PP market, with shipping backlogs at Saudi and Russian ports still looming large. However, there is a lack of confidence about November demand. Buyers are not in a rush to purchase amid a bleak economic outlook.

Players should monitor whether or not Turkey will attract more cargos for alternative origins, particularly considering a recent and healthy correction in China’s PP market. “Turkey may receive more volumes toward late November so long as demand in Europe remains muted and freight rates continue to come off their September peak. This may balance tight Middle Eastern availability,” argued a player.

PE braces for new hikes next month, albeit in smaller amounts

Players expect fresh November prices to emerge with modest increases based on still-supportive utility costs and the upstream chain as well as challenging logistics. Yet, it may take some time for the PE market to become clear given a national holiday next Thursday-Friday.

These projections are also based on a strong trend in China. The record-high EVA prices in Asia pushed LDPE offers to new highs in China this week. Higher ethylene prices and modest import volumes also continued to bolster downstream markets in general. Indeed, the import PE market was unresponsive to slumping local markets that followed falling Dalian futures.

According to the weekly average data from ChemOrbis, Turkey’s LDPE film market currently carries a narrower premium of $90/ton over China, while LLDPE and HDPE film trade around $250/ton above this market. Although freight rates have eased a bit, they stand well above last year while prices on CIF Turkey basis still have some room to move up.

The historic fall in local currency is likely to keep PE players on their toes, meanwhile. A packager said, "PE has a better chance of rising than PP next month. However, demand woes and US PE offers may keep new hikes in check before the market levels off at the end of the year."
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