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Turkey’s PP, PE markets close 2019 with upward corrections; what lies ahead?

by Merve Madakbaşı -
  • 27/12/2019 (08:15)
Sentiment in Turkey’s PP and PE markets improved in mid-December following relentless price cuts during the last 8 months. This stemmed from the end of stock clearing on the sellers’ side coupled with a recovery in China driven by an easing trade tension between the US.

The recent firming was interpreted as an upward correction by most players and seen inevitable at some point since import prices in Turkey lacked premium over China for a noteworthy period.

Markets were on bearish run for more than half of this year

Prior to the recent firming, import homo-PP prices dipped to their lowest levels in 4 years, while PE stood at its lowest levels in more than 10 years.

PP traded at a discount of $10-15/ton to China, while HDPE and LLDPE traded around $60/ton below China, according to the weekly average data from ChemOrbis Price Index. Under balanced market conditions, Turkey is expected to carry some premium over China given freight differentials and its smaller market size relative to China.

Domestic economic challenges amid the volatile USD/TRY parity, frail global demand, supply glut, the US-China trade dispute and macroeconomic woes all contributed to the decreasing trend.

PP slashed by 24% for raffia, 27% for fibre during May-Dec

According to the weekly average data, import homo-PP raffia and fibre offers were respectively standing as low as $965/ton and $1010/ton CFR Turkey right before they moved upwards by mid-December. These numbers respectively indicated cumulative falls of 24% and 27% from $1275/ton for raffia and $1385/ton for fibre in mid-May.

Influx of US supply dragged prices down by 31% for HDPE, 25% for LLDPE

Similarly, HDPE and LLDPE c4 film prices posted dramatic declines of 31% and 25% in total , respectively, during the last 8 months. HDPE film hit $820/ton from around $1190/ton, while LLDPE c4 film was standing at $836/ton compared to $1110/ton in mid-May, on a weekly average.

Competitively-priced American PE cargos were to blame for large declines as the trade war between China and the US led to an influx of US material to Turkey for the most part of 2019. This was also the case in Southeast Asia and Europe.

Sellers renew confidence

However, both PP and PE prices started to gain ground last week since sellers quit offering low prices after depleting their stocks to a large extent. Firmer US prices pioneered a cautious recovery for PE, while Russian, Egyptian and Iranian PP cargos were already sold out. Rising crude oil futures and a short-lived rebound in China also encouraged sellers to raise their sell ideas regarding January, which buoyed activity.

This week, Turkey’s import PP market moved above China almost for the first time since July. Data from ChemOrbis reveal that Turkey stands $20/ton above China nowadays.
As for PE, meanwhile, HDPE and LLDPE are still trading at a discount of $55/ton to China, the weekly average data suggest.

Turkish players cautious as upside momentum falters in China

News that China and the US agreed on “phase 1” deal after a 17-month long trade war boosted sentiment in China and led to increase attempts earlier this month.

Nonetheless, the recent firming has faltered given excess supply concerns amid an upcoming capacity of more than 2 million tons in Q1 2020. Prices were stable for PE and weakened for PP this week as slow demand gained prominence ahead of Chinese New Year holiday.

Indeed, a Saudi Arabian major revealed its January offers with $20-30/ton drops for HDPE and LDPE, while cutting PP by $50/ton.

Will start to 2020 be fragile?

Players in Turkey think that polyolefin prices may retain the recent firming trend in January in case demand remains active and Middle Eastern suppliers preserve their commitment to lift the market up amid a lack of stock pressure. Still, weak dynamics in China and the fact that Turkish buyers already secured their needs may keep any price gain in check .

“US PE sellers are planning to seek deals above $800/ton CFR for HDPE and LLDPE. Prompt PP was already traded with increases amid a lack of regular sellers,” a trader noted.

Yet, the market may not absorb larger hikes if demand wanes and additional capacities in Asia and the US continue to cast a shadow on global outlook for Q1 2020.
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