Traditionally strong Oct Africa PE market suffers 8% price drop

02 November 2011 14:41  [Source: ICIS news]

By Cuckoo James

Polyethylene is used in the packaging of fruits. (Source: Plastics Europe).LONDON (ICIS)--Persistently pessimistic Chinese buying sentiment in October has led to thin trading in African polyethylene (PE) markets despite the month being traditionally strong in terms of demand, industry sources said on Wednesday.

African PE prices have decreased by up to 8% on average from the end of September to the end of October, according to ICIS spot price data gathered on imports into the continent.

“With China out, people are suffering low margins everywhere,” said a regular distributor of imports into Africa.

Substantial movement in exchange rates has added to the downward pressure. Imports – usually priced in US dollars – have become too expensive for buyers as local currencies have weakened in relation to the dollar.

Another reason behind the reduction in import prices has been the increasing availability of PE globally.

Low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) film grades are in abundant supply and imports of the two grades – especially from Europe to the highly accessible northern Africa – have weighed on African prices.

As a result, LDPE and LLDPE import prices have decreased by up to 8% on average in Africa, with northern Africa seeing the sharpest fall.

High density polyethylene (HDPE) film grade has seen the smallest reduction – 2–4% – among the three film grades, because it is not so freely available.

Africa is a net importer of PE, especially from the Middle East and Asia.

Regionally, PE prices in northern Africa have fallen the sharpest, by 4–8%, while eastern and western Africa have witnessed a 2–7% drop.

Import price rises in southern Africa have been held relatively steady at 0-3% by good seasonal demand, and supply tightness from local production losses.

There is some disparity in market forecasts for November price direction. Many producers that normally offer on a monthly basis have reduced their November offers to fall in line with the drop in weekly spot prices, and some even more.

However, prices could experience a slight upward correction if demand in the continent picks up and customers – for so long on a hand-to-mouth buying pattern – return to re-stock.

“November is a normal month – not strong and not weak. There is some improvement in demand as customers need to re-stock now,” said a major PE producer based in the Middle East.

“The prices might increase, not in the first half, but in the second half of November because we have touched the minimum. There might be a slight increase of $50/tonne [€37/tonne],” the source added.

This is echoed by some other market players, which said low margins between PE and feedstocks need to be factored into November pricing.

“With Brent at 92 dollars per barrel, I don’t see a big margin for further reductions, unless there is a serious economical problem. Now, today, whether China buys or not, everybody is worried about the margins,” said the distributor.

A second PE producer said: “[It will be a] decrease for November. Prices are going down in the EU, you’ve seen the [feedstock] ethylene settlement. Also, when I look at Chinese and Turkey markets, I think it is a decrease for November.”

($1 = €0.73)

For more on PE visit ICIS chemical intelligence

By: Cuckoo James
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