After the shock of the renewed devaluation of the Turkish lira last week, it was assumed that a phase of stabilisation would take place this week.
However, the opposite occurred, as the Turkish president again publicly emphasised that he did not want to change monetary policy and wanted to resist the pressure. Furthermore, he suspected a plot against the Turkish economy behind the devaluation but implored his supporters to show will and follow their game plan. As a result of these statements, the lira collapsed again and was quoted at almost 14.40 TRY/EUR in the meantime. This means that the lira lost nearly a quarter of its purchasing power against the euro last month. The next committee meeting of the Turkish central bank is due in about three weeks. The direction of interest rates seems clear, especially as voices from the MHP are also calling for a low-interest rate policy. What will happen to the Turkish currency if interest rates fall again, or has the market already considered this in the recent devaluation? The development of the Turkish lira is currently the biggest unknown, and a valid forecast hardly seems possible.
As a result of the devaluation, there was also an immediate awakening of demand from Europe. Thus, many buyers expected that the advantage of the exchange rate would have a direct effect on the price. However, this was not the case because, in the devaluation, some exporters ensured that raw material prices also rose very quickly and firmly. This led to a somewhat chaotic market in the short term, and some sellers then temporarily withdrew to observe the development first.
As mentioned last week, most exporters started to build up stocks at the time, about five weeks ago, by financing in US dollars or euros and then switching to the Turkish lira. In the wake of the renewed devaluation, several exporters have decided that selling at a loss is not sustainable and are successively raising their prices. Other market participants in the same situation followed immediately. This set in motion a price spiral that suddenly developed its momentum. Last week, the market leader’s purchase bid of TRY 51.50/kg was still the reference price in the market, but this week there were isolated deals at TRY 60.00/kg for raw kernels of the 11-13 mm calibration. Towards the end of the week, however, the market calmed down somewhat and was quoted at TRY 57.00/kg again at the end of the week. We assume that this will mark the lower limit for the time being. However, upward adjustments cannot be ruled out if the lira continues to fall.
The coming trading week will be inspiring in that we will see how the market leader will deal with this situation because it could not buy all the goods it had intended. In addition, the suppliers who withdrew last week will also re-enter the market. We will also see how the demand side will react. Here we see renewed uncertainty in the demand market due to the ongoing pandemic. In addition, the recent price slide has once again fuelled hopes of further falling prices. However, it should be noted that if the Turkish lira gains in value again, it is unlikely that commodity prices will be (quickly) corrected downwards. Then prices could also rise again soon.
Another effect of the now enormously increased prices is that the inflow of raw materials to the TMO has stopped. In the free market, 28.50 TRY/kg prices are now being offered for goods in shell, which is significantly more than through the TMO. The TMO will thus remain at the current stock level. According to the latest reports, this is just over 90,000 mt.
As already mentioned, the coming week will probably be one of orientation and finding, as the market is currently anything but uniformly cultivated.
- President Erdogan again publicly advocates a low-interest rate policy. This leads to a further slide of the Turkish lira.
- Exporters pull up commodity prices significantly to compensate for the currency loss, so export prices are almost unchanged compared to the previous week.
- The rapid price increase and volatility of the local currency led to the temporary withdrawal of some suppliers from the market.
- The price in the open market is now higher than the TMO’s bid, so they are unlikely to receive any more goods in the future. The current stock is estimated at around 90,000 mt.
- After the rapid and significant fluctuations, the market is currently in a phase of adjustment.