Africa avoids Chinese PE re-exports on price volatility risk

22 February 2012 12:42  [Source: ICIS news]

Polyethylene (PE) buyers in Africa are wary of purchasing Chinese re-exports because of the price volatility risk associated with the productLONDON (ICIS)--Polyethylene (PE) buyers in Africa are wary of purchasing Chinese re-exports because of the price volatility risk associated with the product, sources said on Wednesday.

Post-Lunar New Year market sentiment in China is still unclear; making any current selling ideas for re-exports from the country possibly redundant in another week.

“We are keeping [a] close eye on market movement, especially these cargoes coming out of China,” said a distributor that is offering the re-exports into Africa.

PE spot prices have been volatile in China with prices and demand showing signs of softening last week, after weeks of a bull run.

The long six to eight weeks lead time for delivery into Africa also adds to the perception of risk from the buyer’s perspective.

“Basically, we got cold calls from China... shaking our heads in disbelief,” said a second distributor that procures globally and sells into Africa.

The second source added that this could be a sign that demand in post-Lunar New Year China was not as good as previously thought.

“It is not offers from one, but from many Chinese re-exporters/traders. A lot of these products are going to Europe, Latin America and some to Africa.”

Price offers from Middle Eastern producers into Africa could also decrease if a bearish sentiment pushes down sales in their key buyer market of China.

Middle Eastern producers are Africa’s key suppliers of PE and the continent is a net importer of PE.

“Buyers in Africa will buy in small lots; if they can wait, they will wait,” said the second distributor.

Uptake of product is also slow as the re-exports offered from numerous traders based in China are on an FOB (free on board) and EXW (ex-works) basis. Both options exclude freight costs to Africa.

In many cases, these are on a par with or more expensive compared with current African CFR (cost & freight) prices, according to ICIS data collected on imports into the continent. (See price table below for a comparison.)

A distributor based in South Africa said: “Re-export prices are too high to sell in Africa in any case.”

Buyers are free to pick up goods sold on an ex-works basis in China, many of them at the seller’s warehouse. All other transportation costs and risks are assumed by the buyer.

Other offers are from major Chinese ports, including Shanghai, sold on an FOB basis.

“Actually, deep sea customers have been wary about these purchases due to poor experience in the past,” said the second distributor.

However, current re-export offers might sell better if there were indications of any bullish sentiment in China, the distributor added.

“The lending rate going down in China will of course help to revive short-term demand and we expect to see that happen. [We] will keep a close watch.”

TABLE OF FREIGHT RATES AND QUOTATIONS FOR SUPPLIES OF PE GRADES TO AFRICA:

Freight Rates

China – W. Africa

$110/tonne

ChinaS. Africa

$60/tonne

ChinaE. Africa

$40/tonne

ChinaN. Africa

$80-90/tonne



CHINESE RE-EXPORT OFFERS

PE Grade

ICIS CFR W. Africa

FOB Shanghai

Ex-works China

Manufacturer

LDPE

$1,480-1,520/tonne

$1,440-1,460/tonne

$1,360-1,425/tonne

Braskem, PTT, LyondellBasell

LLDPE

$1,400-1,420/tonne

$1,330-1,350/tonne

$1,290-1,320/tonne

SABIC, Petrorabigh, Dow Chemical

HDPE

$1,430-1,460/tonne

$1,440-1,450/tonne

$1,370-1,430/tonne

CP Chem, PTT, Equate









 


 

 

 


Offers to Europe, Latin America and Africa have been made on an FOB and ex-works basis

($1 = €0.75)


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



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