Africa's April PP prices to rise on high naphtha costs in Asia

21 March 2012 17:42  [Source: ICIS news]

LONDON (ICIS)--Polypropylene (PP) import prices into Africa are set to rise for the fourth month in a row because of high feedstock naphtha costs in Asia, and there are early indications that Middle East offers could rise to match the high Asian levels, industry sources said on Wednesday.

Weekly naphtha average prices in Asia have increased by 19% from $921/tonne (€700/tonne) CFR (cost and freight) Japan in late December to $1097.53/tonne on 16 March, while FOB South Korea propylene prices have increased by 15% from $1,185/tonne to $1,365/tonne on average in the same period.

One South Korean producer has already started offering April shipment cargo into northern Africa at an increase of $40/tonne at $1,670/tonne CFR. More producers are likely to follow suit because of high feedstock costs, industry sources said.

Copolymer PP prices in northern Africa are currently at $1,520-1,550/tonne CFR.

"Because of high feedstock naphtha prices, we have to keep this level. If the market cannot meet our offer, we will consider reducing [the] operating rates of [the] PP plant," a source at the company said.

The producer added it would also consider re-allocating product to other regions, if the African market was unwilling to take up its offers.

"[We have] roughly fixed allocations for Africa. However, we will re-allocate volumes of each region depending on market situations".

South Korean producers are under no pressure to sell their allocations into Africa, having seen rising demand from Iran, with one estimate putting its total monthly average polyolefin volumes into Iran at an increase of 20-30% from 2011.

South Korean producers are the main supplier of copolymer grade PP into Africa, while homopolymer grade PP is mostly offered from the Middle East.

Although Middle East producers do not face the same feedstock cost pressure as naphtha-based South Korean producers, most are looking to increase offers by $60-100/tonne to fall in line with their Asian counterparts.

One copolymer producer from the Middle East, that offers on a weekly basis into Africa, has already increased its offers to South Korean levels, adding that the recent bull run is set to continue into April.

"We are still seeing markets being firm," the Middle East producer said. "Generally demand for copo [copolymers] has been good across the regions, India, Africa, Middle East."

Buyers will have little access to cheaper alternatives in April, if the offers from the Middle East rise up to high Asian offers, sources said.

"April increases are likely to be between $80-100/tonne. The increases are coming from the market itself, from high naphtha prices in Asia," a Middle East homopolymer producer said.

However, there has been some resistance among buyers to the high offers seen in the last three months.

Distributors in the region maintain that buyers could continue to buy on a hand-to-mouth basis and wait for prices to drop.

The copolymer PP Middle East producer added: "Demand is normal. But of course, people are expressing some concern, so how long this could be sustained needs to be seen."

Additional Reporting by Ong Sheau Ling

($1 = €0.76)

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By: Cuckoo James
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