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Türkiye’s polymer markets brace for new hikes driven by supply crunch

by Merve Madakbaşı -
  • 19/01/2024 (10:17)
The deepening supply crunch seems to be pushing Turkish polymer players get ready for renewed price hikes in February, as short availability will give sellers an upper hand regardless of the state of downstream demand. Meanwhile, uncertainties about the lingering logistic mishaps and emerging risks keep commodity markets on edge for the long run.

The Red Sea instability wreaked havoc on all markets. The crisis caused the maritime industry to suffer from soaring freight charges, equipment shortages, supply delays, and longer lead times, resulting in the largest disruption to the supply chains since the pandemic.

How long will this disruption persist?

Swiss Kuehn + Nagel reported that several retail giants searched for alternative shipping plans, with 90% of container ship traffic bound for the Suez Canal being rerouted. Ami Daniel, CEO of the UK-based Windward, sees a 40–50% decline in all vessel Suez crossings as possible considering shipping diversions. “The container crunch situation currently unfolding will have a knock-on effect on European exports,” Kuehn + Nagel says, adding that the route that is most affected by delays is that from Asia to Europe.

According to the latest updates, Shell joined BP and many shipping giants in suspending all the Red Sea shipments as Houthi attacks continued despite strikes by the US and its allies while the company reportedly expects to see at least a 5-10% price impact in the short term. The Hong Kong-based shipping company Honour Lane anticipates the Red Sea situation to extend up to six months. MSC notified clients of significant price increases for some container business in the US beginning on February 12, while Maersk expects the turmoil to last at least a few months.

PP takes the biggest hit among all products

Many participants concurred that the PP markets have taken the biggest hit from the unrest as consumers mostly procure their needs from the import market. Volumes from Saudi Arabia, the top homo-PP supplier of Türkiye, dwindled on the heels of delayed shipments and a slew of planned turnarounds in Q1. Moreover, robust demand from converters and traders largely reduced prompt availability at warehouses although demand calmed down a bit this week.

According to the weekly average from ChemOrbis, import Saudi Arabian PP raffia and fibre prices have soared by 17% ($160/ton) and 21% ($210/ton) in total from a month ago. PPBC assessment for the same origin posted a cumulative increase of 19% ($200/ton) in the period, as disrupted shipments from South Korea put supply in peril. A trader commented, “The crisis broke out at a time when traders had already cleared their stocks ahead of the year’s end.
This, coupled with an upswing in shipping costs, shortened availability.”

Tight Middle East volumes lift PE more than $100, keeps demand vivid

PE prices also shot up as a knee-jerk reaction to the shipping bottleneck across the board, with import Middle Eastern offers posting triple-digit increases month over month. ChemOrbis data suggests that prices from the region have risen by 10-13% ($100-130/ton) on a weekly average. A global trader opined, “We expect the rally to continue into February as the tension in the Middle East does not give any signals of an easing soon.”

Indeed, LDPE had already pioneered the bull run back in December amid buoyant demand for domestic cargos and reduced quotas from some Middle Eastern suppliers. The overall upward trend was expanded through other grades as 2024 kicked off, with shipping hurdles and skyrocketing freight rates across the board causing the rally to gain momentum.

PVC to feel the impact more profoundly next month

In the meantime, abrupt polyolefin hikes failed to rub off on PVC in H1 January since muted derivative demand continued to weigh. Although price gains were kept in check by the low season and financial challenges, players expect PVC prices to record some hikes next month based on the recent developments. Indeed, US PVC offers have already risen with a lack of official notifications in line with increasing American K67 prices in nearby Egypt.

Taiwan’s Formosa terminated all its un-shipped CIF PVC cargoes to Europe and Türkiye, effective as of January 12, 2024. According to a letter, moreover, US Westlake warned its customers about potential disruptions to its PVC deliveries, blaming the ongoing logistic mishaps across the board.

Rally in the shipping costs along with the ongoing hurdles in the logistic industry may have a more visible impact on the PVC market going forward, considering sellers’ need to recoup their margins. A player said, “PVC will probably follow bullish PP and PE while we need to gauge the export volumes from nearby Europe in the coming term as it will be pivotal.” A regional producer has already raised its K67 prices by $20-25/ton for latest deliveries.

Will freezing weather conditions in US have knock-on effects?

On Tuesday, Texas citizens faced a winter storm, which caused several petrochemical units to shut down operations or lower operating rates in the area. Although the impact on polymer production was not clear at the time of press, major olefin producers, including Ineos, Nova, Formosa, Gulf Coast Growth Ventures, LACC LLC, and Enterprise were among the companies that took a hit on their ethylene and propylene output.

According to press sources, the Texas power grid managed to hold firm despite record-high demand for heating after failing during a deep freeze period back in 2021. Still, players will need to monitor production in the US as harsh weather conditions are expected to persist across several states.

A player said, “US PE prices have already been on an upward trend due to limited volumes while offers in Türkiye failed to provide an alternative for consumers.”

Lack of FEA cargos fuels sharp PS, ABS increases

As the prolonged turmoil led to tight supply and spiking container prices from Asia, styrenics offers also joined the rally. Import South Korean offers neared as high as $1500/ton for GPPS and $1600/ton for HIPS CIF Türkiye, no duty. ABS injection natural prices even hit the $1800/ton CIF threshold as a lack of domestic production added to the shortage for this product.

A trader said, “We expect to see further hikes of around $100-150/ton in the coming term unless the supply situation normalizes and demand calms down. South Korean cargos have been seeing robust demand driven by fears of deeper logistic issues.”

Enormous gains in resin and shipping costs spark inflation fears

Needless to say, demand perked up due to fears of a prolonged disruption to global supply chains. Yet, the rally was not underpinned by end-product demand. “Minimum wages surged; we struggle to cope with bullish costs,” converters said.

More importantly, the Red Sea shipping disruptions fueled fears of inflation. Industry experts say that the crisis will put inflation at risk of increasing if it lasts long, while spiking container costs globally could jeopardize the economic fight. A global polymer trader commented, “Buyers accepted January hikes to sustain their manufacturing. Nonetheless, they may start to resist larger increases unless downstream segments help converters pass on their surging costs through the prices of finished goods. The crisis will eventually dim consumption.”

This is to say, if panic buying subsides amid the arrival of delayed cargos, this would dilute the impact of shipping congestion. The possibility of a rapid correction following steep hikes as well as a widening gap with Asian outlets will also keep polymer players on their toes in the medium term.
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