Chemical manufacturing in Turkiye

EnergyTechnical ArticlesSouth-East European INDUSTRIAL Мarket - issue 3/2024 • 03.09.2024

Global sales of chemicals more than quadrupled over the two past decades, driven in large part by emerging economies that accounted for more than 80% of new chemical production capacity. Chemical sales in Turkiye have closely followed the global trend. Turkiye is an attractive investment location for chemical companies with its robust market growth fuelled by end-user markets and its competitive production costs. Turkiye is also a regional production, management, and export hub for leading brands in the chemicals industry. Chemical giants such as BASF, Henkel, Bayer, Evonik, Air Liquide, Linde, Ravago, P&G, PPG, and Dow have been producing in Turkiye for decades and have continued to grow over the years.

 

As part of the urban transformation project in Turkiye, it is estimated that around 6,5 million residential units nationwide will be demolished and rebuilt over the next 20 years. Thus, Turkiye’s construction industry, which is valued at USD 60 billion, is one of the fastest growing end-user markets for the chemicals industry in the country. Another promising area in Turkiye’s chemicals industry is the plastics sector, which accounts for almost 3% of global plastics production.
The significant gap between the capacity and the consumption of petrochemical products offers ample opportunities for local and foreign investors. There are also lucrative opportunities in Turkiye’s surroundings that investors can tap into by utilizing the country’s strategic location and top-notch infrastructure.
The combination of a growing economy, a large domestic market, advanced infrastructure, a skilled and competitive workforce, and investor-friendly legislation ensure that manufacturers in Turkiye’s chemicals sector stand to reap long-term returns from investing in one of the most promising emerging nations in the world.

 

Long-standing traditions

Turkiye has been manufacturing chemicals for very long time, being a producer of many basic and intermediate chemicals and petrochemicals. Turkish chemical production includes petrochemicals, inorganic and organic chemicals, fertilizers, paints, pharmaceuticals, soaps and detergents, synthetic fibers, essential oils, cosmetics and personal care products. The majority of chemicals production is done by the private sector.

In chemical industry, 30% of the production has been directly used by the consumers whereas 70% of production has been benefited in other sectors as intermediate goods and raw materials. The turkish chemical industry has been seen as a sector dependent on imports as regards to raw materials and technology. However, Turkiye is among one of the leading countries in the world that has boron, chrome, soda ash and trona reserves.

The chemical industry, together with the sub-industries such as plastics and rubber, employs nearly 200 000 people and has about 6,2 thousand companies manufacturing various chemicals. Very small percentages of the existing companies have more than 150 employees. Most of the companies in the chemical industry, especially private sector companies, are located in Istanbul, Izmir, Kocaeli, Sakarya, Adana, Gaziantep and Ankara.

 

Petrochemical sector

Turkish chemical industry has developed significantly in terms of quality, productivity and protection of the environment, and is in the process of adopting the EU’s Technical Standards. In addition, the responsible care, the chemical industry’s trademarked non-compulsory initiative on environmental, health and safety issues, has been successfully implemented since 1992.

Turkish petrochemical industry has shown considerable growth since 1970. As an upstream producer, TUPRAS (Turkish Petroleum Refineries Corporation) operates as the only integrated refinery in Turkiye with its 4 refineries in Izmit, Izmir, Kirikkale and Batman.

On the other hand, as a downstream producer, unique company in the Turkish petrochemical industry is PETKIM Petrokimya Holding A.S. which is the only integrated petrochemical complex in Turkiye that operates in Petkim-Aliaga complex in Izmir. In PETKIM’s Aliaga complex, a wide range of petrochemicals, all common plastics (HDPE, LDPE, PS, PVC, and PP), aromatics, ethylene glycol, phtallic anhydride, terephthalic acid, carbon black, synthetic rubber, acrylonitryl and caustic soda are produced. The total production of these petrochemicals meets about 30% of domestic demand.

Realized with an investment value of USD 6,3 billion by SOCAR, the biggest direct foreign investor of Turkiye, STAR Refinery was inaugurated in an international ceremony in 2018. Equipped with a capacity to decrease partially the current deficit in the Turkish petrochemical industry as one of the biggest oil operations across the Europe, Middle East and Africa (EMEA) region, STAR Refinery produces petroleum products such as naphtha, xylene, diesel, jet fuel and LPG. STAR Refinery is expected to meet a quarter of the petroleum products needed by Turkiye.

 

Other chemicals

Pharmaceuticals, plastics, soap and detergents, soda, chromium chemicals, boron chemicals, paints, sodium sulphate, fatty acids and rose oil are the other main areas of production of the chemical industry.

Turkiye has the largest soda factory in the Middle East with a total capacity of 750 000 tons/year. In addition to light and dense soda ash, refined sodium bicarbonate and sodium silicate are produced at the Mersin plant. An extremely rich trona (natural soda ash) deposit was found near Ankara, at Beypazari and at present Turkiye has substantial export potential for soda ash. Eti Soda A.S. has started operation in 2009 and 1 million tons/year soda ash are produced.

Being among the top five countries supplying chrome ore to world markets, Turkiye produces and exports some of the most important chrome chemicals and derivatives such as sodium bichromate, basic chrome sulfate, chromic acid and chrome oxide.

Turkiye also enjoys a comparative advantage in boron chemicals (borax decahydrate, borax pentahydrate, boric acid and sodium perborate) due to the size of its reserves, the quality of minerals and proximity to consumer markets. Eti Maden Isletmeleri Genel Mudurlugu is the dominant producer of boron minerals and boron chemicals and the sole exclusive exporter of boron chemicals.

Turkiye has developed a substantial capacity and production of sodium sulphate. In sodium sulphate production, Turkiye comes in top ranks in the world.
Owing to Turkiye’s climatic and ecological conditions, many medicinal and aromatic plants are cultivated or gathered from nature. Turkiye is one of the most important rose oil exporters in the world market. The majority of these exports originate from the Isparta region. Laurel oil, thymus oil, lavender oil and origanium oil are also produced in Turkiye.

In conjunction with recent industrial growth in Turkiye, the consumption and production of many other chemicals are growing rapidly and the number of chemicals produced is increasing every year. The recent developments in textile and leather chemicals are also worth mentioning and many small and medium size companies have recently started to operate in these two sectors.

 

Increasing import and export

With the impact of Covid-19, the size of exports and imports had decreased to USD 23,2 billion and USD 63,9 billion in 2020, respectively. In the same period, the size of chemicals production in the country slightly increased from USD 49,3 billion in 2019 to USD 50,2 billion in 2020.

In 2021, the downward trend in imports and upward trend in production and exports continued with chemicals production surpassing imports, whereas local consumption decreased to below 2016 levels at USD 77 billion. In the first quarter of 2022, the Turkish chemicals export reached USD 7,5 billion and achieved ~40% year-on-year growth.
In 2021, capacity utilization of the chemicals industry increased by 4,2 p.p. (from 74,3% in 2020 to 78,5% in 2021) ~80% driven by increasing production volume. In January 2022, these figures reached 79,5%, the highest level in the last decade.

Furthermore, the domestic price index in TRY terms for chemicals increased by 50 – 150% depending on the chemicals sub-market (~150% for fertilizers and man-made fibers, ~50% for soaps) due to increasing raw material, energy and labor costs. On a positive note, the depreciation of Turkish Lira against the USD by 80% provided Turkish chemicals players a cost advantage for export to EU and US markets. Especially, EU markets including Netherlands, Germany, Italy and Belgium and US manufacturers started to prefer Turkiye as a major supplier with the changing global trade flows and macro-economic policies. Furthermore, Turkish chemicals exports saw a hike to regional countries such as Lebanon and neighbours such as Greece and Iraq.

Considering chemicals sub-segments, mineral fuels exports became the highest growing segment with 81% year-on-year growth and increased its share in Turkiye’s total chemicals export from 20% in 2020 to ~26% in 2021. Plastics, rubbers and inorganics segment recorded 44%, 30% and 33% year-on-year growth in 2021, respectively. One of the main drivers in the export value of mineral fuels and plastics was Turkiye’s reliance on imported raw materials and their increasing prices in USD terms. In 2021, the prices of the crude oil increased by ~60%, whereas the prices for polyethylene (PE) and polypropylene (PP) increased by more than 80% and 100% globally. Furthermore, local production from SOCAR’s Star Refinery stimulated growth in the export of the mineral oils and fuels.

 

Sustainability and innovation

With the disruptions shaping the chemicals industry, the competitive landscape has shifted to a more fragmented structure. For instance, the business model of a trader/transaction supplier is based on buying/selling large-scale products. On the other hand, an ecosystem integrator aims to provide end-to-end value chain coverage by developing capabilities to respond to different customer needs. Customer proximity, agile mindset, multi-lateral collaboration, open innovation and quick integration are vital capabilities for becoming a successful ecosystem integrator.

Turkish chemical companies are hence trying to assess their potential ways-to-play in the market, by answering the critical question of “what is the value we create for our clients?”. This assessment is critical to define the differentiating capabilities, since each way-to-play requires a different capability set to deliver the right value proposition.
Sustainability is becoming an industry standard, which calls for a change in the chemical industry. Based on the UN Sustainable Development Goals (SDG) Compact, responsible consumption and sustainable production, developing a resilient structure to climate-related hazards and building a more sustainable and robust infrastructure are the key sustainable development goals for the chemicals industry.

To achieve United Nation’s SDGs, several leading global chemical companies have already set ambitious commitments for reducing CO2 emission levels, energy and water usage by 2030 to achieve net zero by 2050. For instance, European players such as BASF, Covestro, Bayer and Middle Eastern players such as SABIC defined their strategy to become carbon neutral by 2030 and 2050. The Turkish chemicals companies working with European and US business partners need to announce their sustainability commitments and focus their efforts to comply with the regulations of these territories.

Novel business models are emerging with digitization for higher accuracy, efficiency and transparency. Companies are integrating the essential technologies (i.e., AI, IoT, 3D printing, robotics, blockchain, drones, VR and AR) into their business processes to achieve digital business agility, fast execution and decision making, hyper-awareness and insights, real-time response, and broader collaboration.

Among several examples, Clariant introduced a self-service distributor web shop for fast and flexible offer placement and accelerated the innovation by using data analytics and high throughput experimentation (HTE) to synthesize new molecules and test new formulations. Another end-consumer focused example came from Neutrogena with the introduction of a skin scanner (Skin360TM) and a personalized micro-3D printed face mask (MaskiDTM).

In Turkiye, PETKIM established a new subsidiary to develop a broad R&D and innovation funnel in 2019 and focused on the development innovative, sustainable and commercial products, catalyst and digital technologies for all their stakeholders across the value chain. Turkish chemicals companies need to identify the critical digital technologies and the benefits of their use-cases on their commercial success and operational excellence.

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