14 March 2012 12:29 [Source: ICIS news]
By Cuckoo James
LONDON (ICIS)--South Africa's Sasol has decreased its April low density polyethylene (LDPE) domestic offers by rand (R) 1,000/tonne in a bid to buy back market share from importers, industry sources in the country said on Wednesday.
Concerns about South Africa's business environment have resulted in diminished demand from retailers for plastic packaging. However, slow demand has not stopped PE prices from increasing across other regions in Africa and elsewhere.
Sasol's April LDPE offers are at R12,750/tonne ($1,691/tonne) FD (free delivered), according to industry sources. The company was unavailable to confirm the price offer.
LDPE imports into the country from Europe, Middle East and Asia were higher than Sasol's offers in real terms, at $1,600-1,670/tonne CFR (cost and freight) for April arrival cargo, according to importing suppliers.
Sasol's offers are on a free delivered basis, while importers have to factor in additional shipping clearance, storage and delivery costs, as well as possible fluctuations in rand/US dollar rates.
"Sasol has a clear strategy, they are buying back the market share they lost at the end of last year," said a distributor.
A second distributor said: "The price decrease is obviously to promote LDPE sales, against the rest of the world's trends. They obviously want South African customers to buy, before they export the volumes. If you take Sasol's rand price, after cost of shipping they won't achieve the profit, even in the European markets, so it is better for them to sell locally."
Sasol cut back its LDPE and linear low density polyethylene (LLDPE) film grade production in the second half of 2011 because of feedstock ethylene constraints, resulting in a supply shortage in South Africa and increased demand for imports.
The company's polymer margins have suffered because of the loss of volumes.
Sasol Polymers' operating profit for the first half of its fiscal year 2012 decreased by 5% to R546m compared with the previous year, negatively impacted by a 6% decrease in production volumes from local operations.
"Our local operations experienced a significant margin squeeze due to increased feedstock costs as a result of the increase in average crude oil prices," coal-to-oil converter Sasol said in its interim financial statement.
In a letter to customers dated 2 December 2011, Sasol confirmed its supply shortage was likely to last at least until March 2012.
The first distributor added: "Judging by the financial results, how do you get your customers back but by reducing prices?"
A source at Sasol Polymers said that it's LDPE supply was now back to normal, but it still continues to be "structurally short" on LLDPE.
"We are very much online with it. Supply situation has improved, actually better than expected. Availability of LDPE is very good. It has improved over time, we've had extremely good prodution in the last couple of months, but on LLDPE we are structurally short because of a small plant," the source said.
Sasol added that it is going ahead with its project to ensure a good flow of ethylene supply to its polymer plants.
"Our ethylene purification unit project in Sasolburg, which will yield additional ethylene to support our polymer plants to run continuously, is expected to be in operation during the second half of the 2012 calendar year, at an estimated cost of R1.8bn," the company said.
March LDPE prices are at R13,750–14,500/tonne FD South Africa, while LLDPE prices are at R12,550–13,250/tonne FD. Prices at the low end represent producer offers.
($1 = R7.54)
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