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Listen: Rising lira, high Asian stocks and weak domestic demand hit Turkey's polyethylene markets

The Turkish polyethylene market faces tough times ahead due to the combination of a resurgent lira, high Asian polyethylene stocks, weak domestic demand and rising supplies from both east and western markets. S&P Global Platts North Africa and Turkey petrochemicals editor Daved Chohan and associate editor James McKenna detail the factors and the their effects on the Turkish PE market.

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Podcast Transcript

Rising lira, high Asian stocks and weak domestic demand hit Turkey's polyethylene markets

Daved Chohan: Hi James, it’s been a pretty bearish story recently for Turkey and this is expected to continue for the foreseeable future.

At the start of May, and following the country’s key constitutional referendum, the Turkish lira hit its strongest level of the year at 3.52 to the US dollar.

This followed the Turkish central bank increasing its liquidity lending rate by half a percentage point.

And looking forward, the bank said that it would maintain its tight monetary policy stance until the inflation outlook improved significantly. Inflation hit 11.87% in April, the highest level since October 2008.

James McKenna: OK so the stronger currency means access to cheaper imports. How is domestic demand looking, are there consumers who are looking to exploit the opportunity?

DC: Since the beginning of April, prices have fallen 5%, and weaker domestic demand has played a part in this drop. At the end of April, Petkim cut its list prices for HDPE injection and blowmolding, and PVC prices.

And demand is expected to weaken further with the start of Ramadan at the end of May.

But as we know, Turkey is particularly affected by market fundamentals in Asia, the Middle East, and the US.

JM: And how are the Asian markets looking?

DC: Well this week (w/e May 19) polyethylene import prices in China hit 11-month lows because of weak demand.

Bearish reasons include higher interest rates, slow economic growth, higher domestic production in china, and a weak Chinese currency, among other issues.

LLDPE import prices fell to $1,110/mt May 19, its lowest level since June 2016, and a $45/mt dollar fall since the start of April

Continued weakness in the Chinese currency, hitting a nine year low against the dollar, earlier this week (w/e May 19), have made imported resin unattractive, sources said.

All these factors have combined to lead to more Middle Eastern product offered into Turkey.

JM: Whats been happening in the Middle East?

DC: Well we’ve heard this year that Iran continue to play a large role in the Turkish market. HDPE, in particular, was said to be the weakest grade of PE this month. One trader said a huge quantity of Iranian blowmolding was being offered into the Turkish market at “going out of business prices”.

This comes amid continued expansions.

At the end of March, Iran’s Kurdistan Petrochemical Company started up a 300,000 mt/year HDPE plant in the Northwest province of Kurdistan.

By the end of 2017, the Middle East will retain a surplus of 13m mt/year, according to Platts Petrochemicals Analytics, and will clearly play a huge role in the Turkish market, in years to come.

JM: And looking further into the future, how are things shaping up?

DC: Well the outlook for Turkey, at least for polyethylene, remains bearish. Petrochemical companies globally, including those in Turkey are bracing for an impact from the flow of petrochemicals expected from the US later this year.

The US will add around 3 million mt/year of capacity in 2017, according to S&P Global Platts and market participants, with some volumes bound for Asia. Asia itself will grow around 3 million mt/year of capacity in 2017.

The Middle East will add 1-1.5 million mt/year of capacity. Around 80% of Middle Eastern supply flows to Asia, and if Asia becomes more self-sufficient, and demand continues to look weak, then more of these Middle Eastern tons will flow to Turkey.