FocusAfrica polymer sellers eye March hikes on feedstock, availability

23 February 2011 17:27  [Source: ICIS news]

By Stephanie Wilson

LONDON (ICIS)--Polymers producers are expected to announce intentions to raise African prices by $30-50/tonne (€22-37/tonne) for March, citing rising feedstock costs and limited availability, market sources said on Wednesday.

Political unrest in Libya had pushed WTI crude futures to $95.77/bbl by noon on Wednesday 23 February and concerns that the upheaval could spread to other parts of North Africa and the Middle East left many players feeling that upstream prices were unlikely to ease in the coming month.

Despite increases of a further $30-50/tonne this week, African polyethylene (PE) and polypropylene (PP) prices had failed to keep pace with movements seen elsewhere, and several suppliers also outlined the need to align values with those seen in other regions.

Sellers were opting to move their volumes to Turkey and other European countries in favour of more attractive netbacks, which had further tightened the availability of material in the market. 

“My African allocations are currently at zero because I cannot get enough volume from my suppliers. I have to focus on the better prices in Europe,” one trader said, before adding: “Prices in Africa have to move up to match those in Europe.”

However, several sources – including a number on the sell side – questioned the ability of the African market to absorb further hikes, particularly given the current slow-demand situation in China.

A European trader noted: “People will reduce their production rather than accepting higher prices. These prices are a joke – people ask for volumes and do not take them because of the price. Its particularly difficult for converters to pass the increases on to their consumers.”

This was echoed by PP buyer who was manufacturing agricultural raffia bags, who said: “We cannot take any more increases. We will either have to reduce volumes or shutdown or production entirely. We just cannot maintain this situation.

“The maximum I can pay for homopolymer PP is $1,500/tonne [cost and freight – CFR – eastern Africa].”

Currently, hompolymer PP prices in eastern Africa are assessed at $1,650-1,700/tonne CFR eastern Africa according to ICIS.

However, there could be some relief for beleaguered African converters as slow demand in China since the recent Lunar New Year had led to a build in inventories, according to local sources.

A PE manufacturer conceded: “Demand in China is getting slower and we are seeing shipments of Korean material offered into the Africa market again.”

Indeed, many players were actually re-exporting PP – widely considered the shortest of the two plastics – in favour of higher prices in south America.

This had begun to weigh on sentiment in the polymers markets, and there had been a clear change in mood in the past week.

A number of PE players were optimistic that prices could see a swift downward correction in March/April, which would be welcomed by buyers and the majority of traders alike, both of whom had largely retreated to the sidelines ahead of the anticipated fall in prices.

A Middle East-based trader concluded: “It's a question of who backs down first. Manufacturers are obviously reluctant to drop their offers because of the high crude, but consumers will try and hold out until the prices fall off.

“The market is being pulled in different directions. I expected to see prices going up next month, but demand going down.”

($1 = €0.73)

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By: Stephanie Wilson
+44 20 8652 3214

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