Have exporters started dumping?
The simple answer: Yes, and the first signs were there when we saw a decline in export unit value indices in August data. The export unit value index, which was on rise for the first seven months, declined by 0.6 percent that month. September non-domestic producer price index data released by TurkStat on October 22 have increased the odds for a further decrease in export prices.
The non-domestic price index shows the change in export prices for domestically produced and exported goods. This index defines product price as follows: “Product price is the FOB sales price at the time of the order (following the discount, if there is any), excluding freight, insurance and other non-domestic expenses.”To calculate this index, TurkStat receives the export prices of products directly from industrial companies.
Pr ces rose less than the fore gn exchange rate
According to the TurkStat announcement, non-domestic producer prices rose by 10.14 percent in September, compared to a 59.98 rise in the first nine months and 75.04 percent in the last twelve months. These rates may seem high at first glance but we should keep in mind that these prices reflect export prices. If we had sold a unit of a good at $100 last year and assume prices didn’t change, such an increase would be normal with the foreign rate increases. But the foreign rates increased even more than this.
As of September, the dollar (current exchange rate) rose by 83.60 percent over the last twelve months and the euro by 79.5. The currency basket including dollar and euro rose by 81.6 percent. But how can we reconcile a price rise of only 75 percent with rise in the currency basket of 81 percent over the same time period?
Is the Turk sh l ra dragg ng down the pr ce ncreases?
We have been talking about trading with the national currency for years, as you know. But we face a completely different problem if we use the national currency in trade and it seems that this problem will grow as long as the share of the national currency rises in our foreign trade. 4.6 percent of exports made in the first eight months this year were in Turkish lira. For the whole of last year, this rate was 8.8 percent and 5.5 percent for 2016.
Let’s consider two exporters: They export the same product; one trades with dollar and the other with lira and the price of the good is $100. The one trading with dollar earned TRY 348 last year and will earn TRY 639 this year, an increase of 83.6 percent (the dollar rate was 3.48 in September 2017, whereas it was 6.39 September this year). TurkStat uses an effective selling rate in this calculation. But the exporter trading in liras most probably can’t increase its selling price from TRY 348 lira to TRY 639. It may have to settle with a rise of around 50 percent. That keeps export price increase below the average foreign exchange rate increase.
Or exporters undersell
We can’t know how lira denominated exports affected general trade, but underselling is a strong possibility. Another possibility is that Turkish exporters are underselling to avoid losing market share. We will see, if the decline in the export unit value index observed in August will continue during September as well as the last quarter...
The calculat on method may be the ssue
Non-domestic producer price index is calculated by the data of companies among the biggest 70 percent share for each sector. So there is still a small possibility that exporters within the 30 percent share might change the general trend.