SABIC suspends Nov PE shipments to S Africa on VAT concerns

16 November 2011 12:49  [Source: ICIS news]

JOHANNESBURG (ICIS)--Saudi-based chemicals producer SABIC has suspended its November shipments of polyethylene (PE) into South Africa, fuelling speculation of a possible price increase for imports, sources said on Wednesday.

SABIC’s announcement has come at a time when local manufacturers are short on product, and distributors and buyers are more dependent on imports, industry sources said on the sidelines of the Plastics Packaging Africa conference in Johannesburg.

In a letter to its customers dated 9 November, SABIC announced that the suspension of shipping for two grades of PE – linear low density polyethylene (LLDPE) and high density polyethylene (HDPE) will continue until it finds a “workable solution” to tax changes in the country.

It added: “It will not mean any withdrawal by SABIC from the Southern African market.”

However, the company said it expects the disruption to adversely affect its supply during December and January.

A regular distributor of imported product into South Africa said: “There is a quirk in the South African legislation which has led to them postponing shipments.”

The South African government’s withdrawal of 1.3% import duty from 1 January, 2012, would essentially mean material stored in bonded warehouses from then on would be liable for a 14% VAT payment instead, the source explained.

“If there is no duty and goods cannot be cleared into bonded warehouses, it means VAT has to be paid immediately on imports,” it said.

SABIC stated in the letter to its customers: “The impact of this is clearly far reaching for SABIC, not only in terms of the VAT value which will now be due when a vessel arrives, but also in terms of the practicality of paying VAT in rand and then collecting VAT at the time of sale.”

“Our current business is all conducted in US dollars,” the company continued. “Our current business processes and systems do not easily allow for this change.”

A couple of distributors of imported product said they expect SABIC’s move to push prices up, especially for the shorter LLDPE grade.

“November is peak season in South Africa and product is short from the local producer,” said a second distributor of imported product.

“This news means prices are definitely going up,” it said.

A third distributor said: “They [SABIC] stopped shipping two months ago. Also, there’s a lot of auditing and finance, and it will take time before it is sorted.”

Other suppliers in the market are more cautious, and said supply is unlikely to be disrupted as SABIC is still likely to have stocks at its warehouse in Durban.

“The fact is that SABIC and many other importers haven’t stopped, they just postponed their shipments. They just want to understand its implications. I hope they will resolve this issue within two weeks,” maintained the first distributor.

For more on polyethylene visit ICIS chemical intelligence

By: Cuckoo James
+44 (0) 208 652 3214

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