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Turkey’s premium over China relatively narrows for PE, virus-led uncertainty lingers

by Merve Madakbaşı -
  • 10/04/2020 (10:31)
Import PE prices in Turkey added to their decreases this week as the gloomy economic outlook spurred by COVID-19 pandemic dimmed the market scene. The liquidity issues, subdued activity except for certain end products and a skepticism about the recent rebound in China cushioned the impact of an expected output cut from top oil producers.

Many sellers conceded additional cuts on their offers from initial April announcements, which already emerged with drops of up to $80/ton earlier this month. Some Saudi Arabian suppliers responded to the buyers’ resistance and applied decreases of more than $100/ton in some cases after initially seeking $50/ton declines.

Import PE breaks below new thresholds for various origins

Middle Eastern LLDPE and HDPE film offers broke slightly below the $800/ton CFR Turkey threshold in some cases although this did not come to the light much. Prices were assessed with up to $30/ton decreases for almost all products from last week.

“Import offers recorded a new series of drops even in the HDPE blow moulding market, where activity is better than other PE products owing to demand from the packaging industry,” said a trader. A manufacturer lamented, “Demand from the tourism sector has been quite poor since the COVID-19 outbreak kicked in. We are facing falling orders from holiday resorts and hope to see a recovery by June.”

Offers for more origins neared the $700/ton CFR level in the LLDPE and HDPE film market.
“We heard competitive offers from new capacities in Russia, Azerbaijan and South Korea,” traders affirmed. Following further drops of around $20-30/ton this week, American PE prices hovered at their lowest levels since 2018 when they started to be regularly seen in the Turkish market.

Opinions on China’s cautious rebound

As can be seen from the chart obtained from data on ChemOrbis Price Wizard, import Middle Eastern PE prices sank below the levels that were seen during the oil collapses in 2009 and 2016. This can be interpreted as the impact of different conditions that were valid in these different periods including capacity additions during 2017-2020 in Asia, the US, Central Europe and Central Asia. Needless to say, fears of a global recession and widespread lockdowns amid a pandemic also reinforced the recent downtrend across the board.

In the meantime, China’s local and import PE markets have shown a cautious rebound since last week. This was on the back of the gains on Dalian Commodity Exchange, hopes of less volatility in oil markets, relatively lower local stocks and improved manufacturing following the end of lockdowns in some cities. Players in China reported that import PE prices firmed up particularly on the low ends this week.

The weekly average data from ChemOrbis reveal that Turkey’s import market is currently carrying a premium of $103/ton for LDPE film, $49/ton for HDPE film and $35/ton for LLDPE c4 film over China. These figures have narrowed from last week’s respective levels of $135/ton, $113/ton and $74/ton amid the recently opposite trends in these two markets.

The majority of the PE players do not expect much recovery in the prevailing market conditions until after May, blaming cash constraints, closed export markets including Europe and a virus-led fall in the domestic consumption except for certain products.

Some players, meanwhile, projected that PE prices may hover close to the current levels for a while after some needs-based purchases were concluded. Nonetheless, this opinion is based on the condition that China sustains its firming, about which players are skeptical for now, and the outcome of OPEC+ discussions can spur an optimistic scene across the board for the longer run. “We may witness some small hike attempts next month, but in case logistic issues persist and prompt supply diminishes at some point,” a trader commented.

Eyes on the sequel of OPEC+ meeting

An emergency video meeting between OPEC and non-OPEC partners was held on Thursday in Vienna as the cartel and allies moved to restore balance in crude oil markets. A supply excess in oil supply amid the COVID-19 outbreak urged the organization to take action.

According to media reports, OPEC and allies have agreed to reduce oil output by 10 million barrels/day in May and June. Players will gauge the effect of the decision on crude oil futures and feedstock prices.
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