FocusHope for improved demand in Africa polyolefins market

17 June 2011 13:26  [Source: ICIS news]

By Cuckoo James

Political turmoil in Africa has slowed polyolefins demandLONDON (ICIS)--Seasonal consumption, domestic trading patterns and lower prices could lead to improved polyolefins demand in some African countries despite the mainly bearish market on the continent, market sources said on Friday.

Pressured by the fall in demand from China, global polyolefins prices have declined worldwide. Buyers in Africa are cautious about closing deals and are waiting in expectation of a further price fall.

Africa’s gaze on China is primarily because of the country's influence on polyolefins prices.  

However, slow demand in Africa has also been affected by internal factors. Political turmoil in northern Africa has destabilised trade in the area, while adverse macroeconomic conditions, such as high inflation and unfavourable exchange rates against the strong US dollar, have affected eastern Africa.

According to market players, other critical internal influences that could dampen demand regionally in the next few months include winter in South Africa in June/July and heavy rains across much of the coastal belt of western Africa until August/September.

Yet Egypt, Kenya and South Africa could beat the downwards trend in demand if, respectively, seasonal, pricing and trading patterns go as predicted.

Acknowledging the global slowdown and the crippling political and economic hurdles in northern and eastern Africa and seasonal factors in the remaining regions, market sources say they are hopeful but uncertain of what will happen.

The African Economic Outlook, co-authored by the African Development Bank (AFDB) along with other economic bodies, was released on 6 June and said that sub-Saharan Africa will grow faster than northern Africa this year.

In northern Africa, the conflict in Libya and political uncertainty in Egypt are expected to slow the region’s growth to 0.7% in 2011, compared with 4.7% in 2010. 

In keeping with the outlook's views, polyolefins demand has been low in Egypt during the first half of the year. Trading activity is expected to stabilise only after presidential elections in the country in October/November, according to a local producer in Egypt.

However, in the short term domestic polyolefin producers in Egypt are more hopeful. Many reduced their June offers in the hope of attracting buyers during the peak summer season in June and July. These months have traditionally seen high demand because of activity in the downstream markets ahead of Ramadan, the Muslim fasting season. Demand is expected to fall once Ramadan begins on 1 August.

Additionally, producers say they are hopeful that demand will pick up once tourists start arriving in the summer, although concerns remain as to whether the political turmoil in the wider region could dampen tourist activity this year.

“Traditionally, summer/tourist season [has shown] good demand until Ramadan,” said a second local polyolefin producer in the country.

Referring to the nocturnal curfew in place in Egypt since January, which ended this week, a producer said: “During the hot summer months, people work at night. The [lifting of the] curfew is expected to increase consumption during summer.”

Meanwhile, the president of the World Bank, Robert B Zoellick, announced a $4.5bn (€3.2bn) support package for Egypt at the end of last month, part of which will be earmarked for financing private businesses.

This move has led to some polyolefin suppliers saying that they hope it could help their customers to secure credit, which has been tight since the political turmoil earlier in the year, and that this would boost consumption.

“We think it will facilitate better cash flows in and out of Egypt,” said a Middle East-based producer that exports to the country.

As elsewhere, short-term demand in Africa is dependent on buyer expectations of how the market will develop in the coming months.

During the last week of June, a local producer in South Africa that has a major share of the polyolefin markets in the country and in the broader southern African region, is expected to announce its August offers, giving buyers a chance to plan ahead.

“If prices [for August] decrease, buyers will wait until August to purchase,” said a supplier based in South Africa.

However, a hike in August price offers could see customers stock up on product in July, said the source. This could marginally boost demand in what is traditionally the quiet winter season in South Africa.

However, a buyer in South Africa said: “It all depends on the percentage of increase.”

In eastern Africa, a producer in Kenya reported a positive but cautious reaction from buyers to the current lower polyolefin offers in the country, unlike in other parts of the continent.

Businesses in the country, struggling with high exchange rates and inflation rates, were unhappy with high polyolefins prices that peaked in February, March and April before beginning to fall at the end of April.

“Now that the prices are coming down we are seeing increased volume purchases from customers,” the producer said.

For more on polyolefins visit ICIS chemical intelligence

By: Cuckoo James
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