Rising dollar hurts demand, sellers reluctant to discount

Some of the emerging economies including Turkey, India, Indonesia, Malaysia and Thailand are struggling against the rally in the US dollar. Following the first signal of the US Fed on May 22 that they may stop a third round of quantitative easing, known as QE3, local currencies have been steadily depreciating against the dollar in these countries while some even hit record lows, according to ChemOrbis. A possible US military intervention in Syria has also exacerbated the dollar’s appreciation recently. This situation, needless to say, has hampered demand in polymer markets considerably, although sellers are in no mood to concede to discounts. The Turkish lira weakened to record lows on Tuesday, falling beyond 2 TL to the US dollar for the first time. When compared to the beginning of 2013, the lira lost more than 13%, a major portion of which occurred in the past three months after the Fed’s first signal. Accordingly, Turkish polymer buyers, particularly the ones whose sales are more domestic market oriented rather than for exports, are facing great troubles to maintain their margins as they buy their raw materials in dollars and sell in lira. Many converters are disappointed to see a lack of revival in their end product businesses after the Ramadan holiday in the latter part of August. On top of already stagnant demand, the soaring dollar hit demand further, cutting the appetite for new imports noticeably. "I have stocks to run down for two months. As long as I cannot sell what I produce, there is no point in buying more cargoes," a PP buyer said. On the other hand, sellers in Turkey are not ready to yield to discounts on the back of soaring energy and feedstock costs. “Buyers are now captured by the feeling that the market should follow a stable to soft trend in September now that the dollar has risen considerably. However, there is no softening on the horizon. Rather, the market is set to move higher as crude oil hit US$108/bbl and naphtha and monomers costs are higher across the board,” said a source from a global trader. A very similar situation is in place in India, where the rupee has posted successive records and plunged to a new low recently. The rupee fell to an all time low of 66.30 rupees to the dollar while it shed 22% since the beginning of the year. A distributor in Mumbai said, “A domestic producer keeps its offers steady since any attempt to make further hikes are not likely to be achieved under such market conditions. There is stiff resistance on the buyers’ side now that the local currency hit fresh record lows against the dollar. Trading activities are very limited.” The Indonesian rupiah, meanwhile, moved above the 11,000.000 threshold this week against the US dollar, which was last seen in April 2009. When compared to early 2013, it lost ground by approximately 18%. Indonesia's government and central bank announced a policy package to prop up the weak currency on Friday, as authorities struggled to revive confidence in Southeast Asia's largest economy. However, markets were doubtful the measures would stabilize the currency. A distributor in Jakarta said, “Our sales are performing very slowly. Buyers prefer to wait and see although they are aware that higher feedstock costs and global markets are imposing upward pressure on polymer prices. They feel squeezed as they buy their raw materials in US dollar and sell their finished goods in rupiah. The government is trying to stabilize the currency, although we feel like this will have a temporary effect on the market.” The Malaysian ringgit also fell to its lowest in more than three years last week, when the minutes of the Fed's July 30-31 meeting was released, offering little hint on when the US central bank might reduce its asset-buying program. The ringgit lost as much as 0.8% to 3.3200 per dollar, the weakest since June 2010. A PS producer in Singapore offering to all Southeast Asian countries commented, “It is meaningless to adjust the prices up or down as there is no buying interest. Upstream costs are indicating an upward trend but demand is quite sluggish. Buyers in Southeast Asia are very concerned about the plunging local currencies and they prefer to remain on the sidelines, according to ChemOrbis. We are not able to conclude any deals although we are open to negotiation for some accounts.”