Turkey’s PP, PE markets open 2021 with supply-driven hikes

Import and local polyolefin markets of Turkey extended their gains into the new year mainly on the heels of supply constraints. PE saw larger increases than PP for January, while a general cautiousness pervaded both markets regarding the medium term.

The factors behind the new series of hikes can be cited as follows:

•   Reduced allocations from mainstream suppliers

•   Prolonged logistic issues on pandemic, holidays

•   Massive freight hikes from Asia, the US

•   Higher crude futures, upstream costs

Logistic disruptions continue to pervade polyolefin markets

Global commodity markets have been affected by disruptions in the supply chain since the last quarter of 2020. Vivid global trading ahead of the new-year holidays coupled with virus-driven setbacks in port operations caused a lack of containers mainly from Asia and shipping costs skyrocketed.

Turkey’s polymer markets continued to be affected by delivery delays moving into 2021 while freights did not signal any easing. The combination of soaring transportation fees and planned shutdowns for February-March kept PP and PE volumes from regular suppliers limited.

A Middle Eastern producer plans to conduct an annual turnaround at its PE plants (with a combined capacity of around 2 million tons per year) starting from the middle of February. “Some vessels that were due to arrive in January faced delays which reinforced constraints for certain origins,” added players.

Regional PP producers including Saudi Advanced, Saudi Kayan and Saudi Ibn Zahr are also readying for scheduled maintenance in late Q1. Egyptian and Israeli sources already provided reduced allocations to Turkey despite tempting netbacks in the country, while some Saudi volumes for January were already sold during December, keeping PPH supply limited.

Petkim started the new year with price increases

On Monday, the domestic producer, Petkim, issued increases of $50/ton for LDPE and $30/ton for HDPE and PP. The move was in line with higher ethylene and propylene contracts in Europe as well as modest stocks at the producer. Shortly after, the company applied an additional increase of $80/ton for LDPE, the tightest product in terms of availability.

Distributors followed suit for PE as the overall price ranges were quoted $60-80/ton higher when compared to the week ending on December 27. The locally-held PP raffia market, meanwhile, was unresponsive. “The low season has kicked off for sack makers. Moreover, buyers are waiting for prices to become clearer,” a participant opined.

Middle Eastern PE producers sought up to $100/ton hikes

A Saudi Arabian major issued increases of $100/ton to Turkey on the contrary to its $30-50/ton lower announcements to China. The seller’s prices had formed the low ends of the overall Middle Eastern price ranges last month in Turkey. A converter said, “We already expected visible hikes from the seller. Modest discounts in January deals are found likely.
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The major’s weaker pricing to China was attributed to the pre-holiday sluggishness in this market, where offers have been leveling off in the last few weeks despite still-limited overseas supplies.

A different Middle Eastern producer already sold out its allocations to Turkey with increases of $90-100/ton for LDPE and LLDPE and $60-70/ton for HDPE film. A producer source said, “Demand has been active amid our limited volumes.”

Already inflated prices kept fresh PPH hikes in check

Import homo-PP prices posted more modest gains when compared to PE grades. This was due to the growing premium of Turkey’s PP market over China, which already surpassed $200/ton in December. It bears repeating that this mounting premium partially stems from freight differentials.

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This week, dutiable homo-PP prices were assessed $10-30/ton higher from late December. “PP hikes lagged behind those of PE during the first week after new-year holiday. This was not caught by players’ surprise as PP offers already rose a lot in the last couple of months,” noted a large converter.

Multi-year high premiums over China keep players cautious

According to the ChemOrbis Price Index, import Middle Eastern offers in Turkey are carrying an all-time-high premium of $235/ton over those in China amid opposite directions in these two markets. In fact, a Saudi Arabian major issued $50/ton drops to China in response to waning PP demand ahead of the holidays.

Middle Eastern LDPE prices moved above the levels in China for the first time since August 2020. The recent levels on CIF Turkey basis point to a 10-month-high premium of $55/ton. LLDPE C4 film is carrying the highest premium ($165/ton) in 6 years, while HDPE trades $195/ton above China, indicating a 9-year-high premium, according to the weekly average data on ChemOrbis.

These multi-year price gaps have generated a cautious stance among polyolefin buyers regarding what will the latter part of Q1 unfold for Turkish markets. Prices may hover at or close to the prevailing levels in the near term on supply issues and a-year-high oil benchmarks, most players concurred.

Still, the upcoming holiday in China, buyers’ inability to reflect surging raw material costs onto their end product prices, and rising COVID-19 cases cast a pall on the medium-term outlook. The majority of players believe that both PP and PE prices will need to see downward corrections although exactly when is a question mark. “These huge premiums over China will not be sustainable at some point. Prices will need to be revised down once freights calm down,” a trader agreed.