The Turkish plastics market faces tough times, but has strong fundamentals for sustainable prosperity, writes Paul Cochrane
The Turkish plastics manufacturing sector has grown exponentially over the past decade, but growth has spluttered over the past year due to the country’s economic downturn and currency depreciation raising the cost of raw materials. Investment has also slowed, but manufacturers are optimistic the sector will rebound, with exports remaining strong.
Turkey has a plastics processing capacity of around 10 million tonnes, equivalent to 3% of global plastic production, with the country the world’s sixth largest plastics manufacturer, and the second in Europe after Germany, according to Barbaros Demirci, a consultant to Türk Plastik Sanayicileri Arastırma Gelistirme ve Egitim Vak (PAGEV – Turkish Plastics Industrialists’ Foundation).
In 2018, the industry’s turnover reached $36.5 billion, but output quantities declined by 6%, and 5% by value, according to Erol Türker, brand manager for Ege Communication Consultancy in Istanbul, which operates websites plastonline.com and pnturkey.com.
In the first six months of 2019, overall plastics production dropped 11%, from 5 million tonnes to 4.5 million tonnes, according to Türker. Exports on the other hand increased by 12% compared to the same period in 2018.
Exports for 2018 have been valued at $5.9 billion, with the European Union (EU) the largest importer, commanding 13.6% of purchases, at $806 million, said Türker. Germany, Belgium, the Netherlands, France and Italy are the top importers. So far this year, sales to Germany have declined, but those to the UK and Iraq have risen, with the neighbouring Arab country Turkey’s largest national export market, with sales of $207 million in 2019, according to Türker.
“We’ve lost some ground over the last two years, mainly due to the loss of purchasing power in the domestic market, which created a surplus among manufacturers. The devaluation of the Turkish Lira also had an impact, especially for companies buying raw material in foreign currency, but the sector is recovering slowly,” said Burç Angan, executive board member of Plastik Sanayicileri Dernegi (PAGDER, Turkish Plastics Industrialists’ Association) to Plastics News Europe.
Turkey has been experiencing an economic downturn over the past year. Its economy contracted by 1.5% in April-June (2019) year-on-year, according to the Turkish Statistical Institute (TurkStat – Türkiye Istatistik Kurumu). Inflation is on the rise (annualised rate 16.65% in July, said TurkStat), while the Turkish Lira dropped 47% in value against the US dollar in the first eight months of 2018. Maybe unsurprisingly, imports of plastics dropped from a high of 5 million tonnes in 2017 to 4.7 million tonnes in 2018, with the value sliding from EUR5.5 billion to EUR5.19 billion, according to ChemOrbis, an information provider on the plastics industry. In the first half of the year, plastic raw material imports decreased by 8% year-on-year, according to PAGEV.
But some manufacturers are dependent on imports and they are suffering increased costs, with 85% having to import polymer, said Türker. Overall, just 13% of the Turkish plastics sector’s input needs are supplied locally, according to PAGEV.
Due to the economic downturn, polyethylene (PE) and polypropylene (PP) production has declined over the past 18 months. “After prices reached an almost three-year-high in early 2018, they tracked a downward path from the beginning of the second half of last year to early 2019. Prices are currently standing at a 10-year low,” at less than $1,000 for HDPE (high density polyethylene film) and under $1,100 for PPH Rafia, said Esra Ersöz, manager of market information at ChemOrbis.
Plastic raw material production was estimated at 507,000 tonnes in the first six months of 2019, of which LDPE (high density polyethylene) was 31%, HDPE 9%, PVC 15%, PP (polypropylene) 12%, PS (polystyrene)10% and PET (polyethylene terephthalate) 23%, according to Türker.
The majority of Turkish plastics production, at 40%, is destined for packaging, catering to export demand but also local producers. Construction accounts for 22%, durable goods 10%, agriculture 6%, textiles 4%, and automotive 4%, according to ChemOrbis figures.
Turkey is one of the world’s largest textile and garment manufacturers, with exports of textiles amounting to $10 billion and clothing exports around $17 billion in 2018, according to Istanbul Apparel Exporters’ Association (IHKIB – Istanbul Hazır Giyim ve Konfeksiyon ihracatçilari Birligi) figures, offering a solid sustainable base of demand for exporters.
The plastics industry is a major supplier to the country’s $31 billion automotive export industry, with production having surged from 374,000 vehicle units in 2002, to 1.696 million units in 2017, with 1.3 million units exported, according to Otomotiv Sanayii Dernegi (OSD, the Automotive Manufacturers Association) figures.
Turkey has 17 automotive plants, being Europe’s fifth largest vehicle producer and the leading manufacturer of light commercial vehicles. The sector, and hence its plastics suppliers, could be given a boost through a planned investment by Volkswagen (VW) to build a manufacturing plant in Izmir, western Anatolia, while there are also plans to create the country’s first Turkish-owned car manufacturer through a consortium of five Turkish companies.
“Considering Turkey’s medium-term plans to manufacture its domestic car by 2022, the automotive sector’s share in overall plastics consumption may increase in time, albeit not immediately,” said Ersöz.
Figures vary on the number of plastic producers, with Türker estimating there are 7,000 plastic product manufacturers in Turkey, with in-house producers in different industrial sectors bringing the figure to 8,000 to 8,500 producers.
PAGEV estimates there are 6,500 companies in Turkey producing and supplying inputs to the main exporter industries such as automotive, electrics, electronics, packaging, textiles and construction. “Around 99% of the companies are small-and-medium-sized enterprises,” said Demirci.
Despite the high number of producers, Ersöz said just 20% of manufacturers account for 80% of production.
However, the number of manufacturers has declined over the past year. At the beginning of 2019, an environmental law came into force, forcing retailers to charge Turkish Lira TRY0.25 ($0.04 cents) per plastic bag at shops. According to Ersöz, plastic bag consumption has dropped 75%, while production has dropped 50%, causing hundreds of producers to go bankrupt. Some 2,000 companies have closed, according to Demirci.
Manufacturers could also be impacted by a deposit system for PET bottles to be implemented on January 1, 2021, under a ‘zero waste project’ initiated by Turkey’s ministry of environment and urbanisation, which could cause a contraction in sales due to higher beverage prices, added Demirci.
Also, currency depreciation and the recent slowdown in the market has adversely impacted plastics investment, after years of growth. From 2014 to 2018 as domestic plastics demand and exports grew, an average of $892 million in machinery and equipment was purchased per year by the industry, according to PAGEV figures.
“This year we’ve seen a more than 50 percent decrease in equipment imports, a considerable amount that reflects the general state of the industry,” said Angan. In the first six months of 2019, investment totalled $300 million. “If the trend continues, it’s estimated that investment in the industry will be $611 million at the end of 2019, decreasing by 35% compared to 2018,” said Demirci.
Purchases of processing machines have dropped particularly steeply, at the same level for German as well cheaper Chinese equipment. Only sales from Japan have stayed buoyant, primarily due to demand for electric equipment, said Angan.
In his view, however, the drop in investment was “not a setback” for the sector: “Investment has only dropped this year, and the industry has invested a lot in recent years and doesn’t need new technology. We can manage a few years of reduced investment, but if this persists, it could reduce our competitiveness in global markets,” said Angan.
The devaluation of the lira has made Turkey a cheaper production hub for buyers, while international companies have shown interest in investing in the sector, added Angan.
Indicative of this is Japanese investment this past year. Sumika Polymer Compounds acquired Turkey’s Emas Plastics, a leading producer, while Japan’s DIC Corporation group acquired Makro Chemical Industrial, a polyeurathane producer. India’s Varroc acquired Sa-Ba Industrial Products Manufacturing, one of the Turkish automotive sector’s plastics suppliers, according to Türker.
Such investments have added to the growing pool of foreign shareholders in the industry, with stakes in 389 producers. According to PAGEV, of 202 foreign plastics producers operating in Turkey, 52% are European (12% are German, 8% are Italian, and French and Dutch investors account for 6%), 14% Syrian, and 7% are Iranian. Syrian investment increased following the outbreak of the Syrian conflict and resulting civil war in 2011, with Syrian manufacturers setting up in neighbouring Turkey because of its proximity and safety.
As for basic plastics supplies, new investments in polyethylene and polypropylene are soon expected to reduce the costs of final product manufacturers.
A consortium of Turkish investment firm Rönesans Holding and Algeria’s Sonatrach are planning to build a $1.2 billion, 450,000 tonnes per year polypropylene production facility in Ceyhan in southern Turkey that is slated to be operational by 2023, while a joint venture between Qatar’s Fusion Dynamics and Turkey’s Metcap Energy to build a $4 billion natural gas chemical plant in the Thrace basin will produce 400,000 tonnes of PE and 600,000 tonnes of PP. Another project, financed by Istanbul-based CFS Petrochemicals, in Adana, will produce 500,000 tonnes of PP per year.
Such investment will raise Turkey’s production capacity to 846,000 tonnes of PE, and 1.69 million tonnes of PP by 2023. Henceforth, “about 33% of PE and 58% of PP domestic consumption will be able to be met by local production, the remainder by imports,” said Demirci. He forecasts domestic Turkish consumption of plastic raw materials will reach 7 million tonnes, valued at $9.4 billion, by the end of 2019.
So, while Turkey’s plastics sector maybe facing some tough economic headwinds at present, its longer-term future looks solid, with demand and supply both domestic and overseas looking sustainably balanced.