Türkiye PP, PE 2024 outlook: Macroeconomic recovery to remain pivotal

Polyolefin markets are about to end the year 2023 with a firmer sentiment on the back of arising supply concerns. Although PP and PE prices started December on a weak note, with most players focusing on their book closures instead of fresh engagements, the Red Sea turmoil has changed the scene very recently. Now, already-low netbacks in Türkiye, coupled with the recent logistic hurdles, point to a different story for early 2024.

Into 2024, the pace of economic recovery, global capacity additions, possible changes in trade flows, reinforced competition among suppliers amid reduced consumption, and monetary policies of major economies will remain hot topics to gauge in the PP and PE markets of Türkiye.

2023 at a glance: There was less price swing but more trouble

This year has been tougher than 2022, according to many players, as deeper macroeconomic issues took their toll on resin trading and downstream segments. Indeed, import prices moved within much narrower ranges in 2023 as compared to 2021 and 2022, when markets had witnessed meteoric increases or nosedives between peaks and troughs during the pandemic era. Even so, reduced consumption amid inflationary pressures came to the fore and gave players a rough ride, let alone the impact of financial challenges sweeping commodity markets and uncertainties related to elections.

Markets followed an uptrend in the first quarter of 2023 as traditional restocking activities and supply cutbacks propelled prices higher until both PP and PE turned down by late March. Import polyolefin prices continued to slump for 4 months until both markets bottomed out in July.

Although import Middle Eastern prices gradually rose until October on the back of bulls in oil markets, they failed to reach the March peaks during this second uprun as reduced downstream consumption amid inflationary pressures and tighter liquidity limited the upside. Indeed, the October peak stood $100-150/ton below March highs, as per the weekly average data from ChemOrbis.

PP torn between disappointing seasons and sellers’ thin margins

Sack and carpet manufacturers elected to run their factories at lower rates of 50-70% for the most part, citing their lower end-product orders at home and in export markets compared to the prior years.

Enormous quakes that rattled more than 10 cities in February halted production for weeks amid damage at several downstream factories in the main industrial hubs of Hatay, Gaziantep, Adana and Malatya. This also largely hit resin purchases and even the supply issues related to delayed deliveries or losses of containers at quake-hit ports did not have a major impact on the market.

As 2023 wore on, a tough economic climate that surrounded Europe and the US dented seasonal optimism. Turkish converters coped with the depreciation of the local currency at home while also combating a demand gloom in export destinations. On top of a global slowdown in automotive, food packaging, textiles and furniture sectors, several converters shifted to polyesters, tempted by more competitive prices and favorable payment terms, which posed another obstacle for PP fibre.

On the other side of the coin, PP suppliers lamented their poor margins heading into Q4. This was because supply management strategies that pervaded monomer markets stymied the impact of falling oil futures on olefin prices, leaving sellers with squeezed margins. The narrowing premium over China’s import market also helped markets stabilize by mid-December despite the murky demand outlook.

PE converters cope with stiff competition in end-product markets

As prices turned south by early Q2 amid the return of several Middle Eastern producers from turnaround season, LDPE’s plunge made a scene across global markets. Weaker supply-demand dynamics caused this product, known to be the most expensive PE grade, to lose its premium over LLDPE and HDPE film by April. LDPE traded at par or even below other products from May until September, when it regained its premium.

The depreciation of the Turkish Lira against its peers was an obstacle for PE consumers, most of whom sell their end products in the local market. Their need for cash prompted many manufacturers to provide competitive prices and others had a hard time passing the higher costs on to prices of their finished goods.

Stats: Imports do not lose momentum despite tight liquidity

Nonetheless, imports shone out amid more modest than expected movement in the FX rates. Although polyolefin markets confronted many unknowns in Q2 given uncertainties amid two rounds of elections, 2023 import volumes suggested continuous growth.

According to ChemOrbis Stats Wizard, Türkiye’s cumulative polymer imports have already neared 5.5 million tons in January-October, as compared to 5 million tons in the corresponding period last year. Assuming that November and December volumes will not be below 2022, imports will likely be near or reach 6 million tons to hold a record.

At a more detailed level, PPH imports from Iran have dived to below 500 tons so far this year, as compared to around 10,000 tons recorded in 2022. This was not surprising considering an export ban on PP grades from Iranian authorities. On the other hand, Iran continued to be among the top PE suppliers, as it ranked second for LDPE with 30,000 tons and HDPE with 146,000 tons, and third with 48,000 tons for LLDPE. This is to say, Turkish buyers did not give up on Iranian PE amid its logistic proximity, although prices were often deemed above the workable market levels.

Despite huge capacity additions in China, Türkiye’s cumulative PP imports from the country have shrunk from about 60,000 tons in 2022 to only about 2,000 tons in January-October 2023, up-to-date data showed. Vietnam and India have been China’s top buyers, with the country boosting its exports to 192,000 tons so far this year from 143,000 tons in 2022.

War in the Middle East, soaring freight rates mark on Q4

On top of the Middle East conflict that kicked off in early October and caused jitters across financial and commodity markets, the recent disruption to the Red Sea traffic has wreaked havoc in polymer markets. Major shipping companies suspended their runs through the route as attacks on commercial ships heightened security concerns. Many cargos were rerouted as MSC, Maersk and many other freight forwarders decided to divert vessels away from the Red Sea and Suez Canal until safety was restored.

According to Freightos, the situation will impact shippers on affected lanes in the form of longer lead times and higher freight rates as carriers take longer routes with higher costs. But with alternative routes and plenty of excess capacity available, operations should continue reasonably well, and freight rates are unlikely to spike to the extreme highs seen during the Evergreen congestion in the Suez Canal.

Prices pose for a rebound in Q1 2024, but to what extent?

PP and PE players have already been holding slightly firmer expectations for January based on poor netbacks to China’s import markets, easing stock pressures on sellers owing to the earlier depleting activities, as well as potential restocking by the new year. The recent news about soaring freight rates from Far East Asia reinforced these projections by all means.

PP sellers have already attempted to lift their prices even before the news, while LDPE enjoyed revived demand following Petkim’s consecutive hikes in the spot market. The rising costs of imports driven by the abolishment of the VAT discount right in late November, limited availability at Petkim for certain grades, and possible delays of Middle Eastern cargos have created a perfect for LDPE sellers.

“Sellers cannot determine their prices given unstable freight rates. We know one thing for sure is that demand for prompt material will be robust in the coming term and import polyolefin producers will apply price hikes,” players opined.

In the meantime, some players take a cautious approach and believe that the situation is temporary, and prices may post only modest gains unless derivative markets recover. “If disruptions last long, this would hit demand in most industries amid higher inflation risk and weigh on buying sentiment,” a converter warned.

When will Türkiye get its economy back on track?

Despite the recently improved sentiment on the sellers’ side, players keep in mind that any dramatic hike attempts will be pushed back by PP and PE buyers so long as downstream demand continues to underperform. Türkiye’s economy will continue to be under a heavy strain in the medium term amid cash constraints while improvement will come only in stages.

In any case, major central banks do not plan to lower interest rates quickly next year, while monetary policies will remain tight to continue to focus on cooling inflation. As for Türkiye, players think the pre-election period may see some incentives from the government, which would bolster consumption toward Q2. Still, analysts say that a more solid recovery in the macroeconomic environment does not seem likely before late 2024 or early 2025.

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