OUTLOOK ’12: Africa PE, PP demand steady despite global woes

29 December 2011 12:41  [Source: ICIS news]

By Cuckoo James

Polyethylene is used in food packagingLONDON (ICIS)--Growth in local consumption will offset Africa's exposure to domestic and international crises and help to sustain current levels of polyolefin demand, industry sources believe.

Market sources do not expect a major dip in overall demand next year, despite Africa's vulnerability to the ripple effect from the eurozone debt crisis.

“I think the demand is stable, maybe there is even a slight growth," said a polyolefin distributor.

"The only market that could be affected is Morocco, Tunisia too but it is a small market, they sell semi-finished plastic goods to [the] EU. Algeria sells more to the local market," the distributor said about the impact of the eurozone crisis on Africa.

The International Monetary Fund (IMF) has predicted a 6% growth rate for Africa in 2012, exceeding levels predicted for much of Europe and putting its growth rates almost on a par with Asia.

It is a success story that industry sources predict will open up local opportunities for polyolefin – polyethylene (PE) and polypropylene (PP) – sales.

“All the countries [in Africa] are posting good growth. They have a significant growing manufacturing base,” said a second polyolefin distributor.

“Africa is the only continent to be isolated from the world economic situation. We are not seeing any slowdown in Africa,” it said, referring to polyolefin demand.

Polyolefin producers in the Middle East and Asia, and even in Europe, retain a more optimistic outlook on Africa than for many other markets.

Direct Middle Eastern presence in Africa has increased through 2010–2011, and is expected to continue into 2012.

“This is the first year we have been selling directly in Africa. We think Africa is going to be one of our key markets,” said a polyolefin producer.

“Whatever we are losing in Asia, we are pulling it in Africa. Demand is sustained. Plastic demand has been very good in the past one year,” said the producer.

A growing population and potentially improving political stability could help Africa, said sources.

"A lot of pent-up demand and lot of investments will go through now," said the first polyolefin distributor.

“There is a good working-age population which will boost the economy. Lots of countries are moving towards political stability,” said a polyolefin producer based in India.

"Demand has been a bit slow this year, maybe down by 10% or so. It should go back to normal next year, depending on how the elections work out," said a polyolefin buyer in Egypt.

A key factor in determining the ebb and flow of demand on a month-by-month basis will be Chinese prices. Customers in Africa are keenly sensitive to price movements in the country, sources said.

Some maintain that this is because price offers from Middle Eastern and Asian producers into Africa depend much on developments in their key buyer market of China. However, others are quick to repudiate this.

"The Chinese New Year is the marker, we are all going to wait until that. I have a feeling that whatever has to happen in the LDPE [low density polyethylene]market will happen after that," said the first producer about the first quarter of 2012.

"In January many customers will be shutting down in China, but it will not affect prices or demand in Africa," said a third producer.

Slight price corrections on expensive polyolefin grades – such as LDPE – are also touted to occur in the first quarter of next year. However, LDPE will retain a premium over other film grades after that, sources said.

"Once demand comes back in China, LDPE prices will stabilise as we haven't seen too many new LDPE capacities in the world, but for LLDPE [linear low density polyethylene] we have seen many in the Middle East," a third polyolefin distributor said. 

As overall demand in Africa in 2012 is forecast to be flat, supply is expected to be balanced to long, unless companies run into production problems.

More than 4m tonnes of PE capacity is scheduled to come on line in the Middle East between now and 2015.

However, local supply in Africa will remain limited and the continent will continue to be a net importer of polyolefins, apart for the southern African region.

However, South Africa’s current PE shortage is touted to last at least until the end of March 2012 because of a lack of supply from local producer Sasol and reduced imports. Risk factors such as a long lead time for delivery and currency volatility are expected to deter other suppliers from venturing into the region.

With demand flat and supply long, prices could be expected to come under downward pressure in 2012. However, sources caution that high oil and feedstock ethylene and propylene prices could prevent this.

"Generally, buyers are aware prices hit bottom," said the third polyolefin producer.

For more on PE, LDPE, LLDPE and PP visit ICIS chemical intelligence

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

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