South Africa February PE sentiment bearish on economy, demand

08 February 2012 16:04  [Source: ICIS news]

LONDON (ICIS)--Sentiment in the South African polyethylene (PE) market is turning bearish after a bullish spike at the end of last year, industry sources said on Wednesday.

Concerns about the country’s business environment have resulted in diminished demand from retailers for plastic packaging, offsetting the upward pressure exerted by supply shortages from local producers.

“We were hoping it [2012] was a comeback year, that some of the momentum gained in November would continue,” a sales executive at a PE distribution company said.

Its customers are complaining of low order levels from downstream markets, the source said.

“It is feedback in terms of ... forward orders. [The] converting industry normally sits with orders of four weeks. In good weeks, it can extend to five or six, now it is more like three weeks.”

A source at another PE producer said: “South Africa is not growing anywhere near the rates India or China is. I heard 2.5% growth, and packaging tends to follow that.”

The sentiment was expressed by market players as the Business Confidence Index (BCI), published on Wednesday by the South African Chamber of Commerce and Industry (SACCI), showed a decrease to 97.1 in January from 99.1 in December – its lowest level since May 2010.

The index report identifies low economic growth, unemployment, higher inflation, public administration defaults and unsustainable social demands among factors that cloud the South African business outlook for 2012.

Sentiment in the PE markets was bullish at the end of last year, with prices rising sharply in December, boosted by shortages from local supplier Sasol and good demand.

BCI temporarily improved in December, SACCI said: “The December 2011 upturn turned out to be a temporary spike, rather than a turning point in the depressed level of the BCI.”

The PE supply shortage from Sasol is expected to last until at least March. However, industry sources said this is not exerting any upward pressure on prices, unlike the situation in December.

“[I] heard Sasol has an LLDPE [linear low density polyethylene] supply problem again – but unlike in December, there is no panic-buying. [It is] very quiet. [I have] spoken to a few competitors: they all say the same,” a sales executive at a second distribution company said.

Prices for low density polyethylene (LDPE) and LLDPE have decreased this week because of the bearish sentiment.

At the time of writing, ICIS data showed that the top end of LDPE and LLDPE prices had fallen by South African rands (ZAR) 500/tonne ($66.1/tonne, €49.8/tonne) to ZAR13,650–15,000/tonne and ZAR12,400-13,100/tonne for the respective products.

($1 = ZAR7.57, €1 = ZAR10.04)

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

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

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