Africa LDPE film premium falls to its lowest level in two years

22 March 2012 14:48  [Source: ICIS news]

LONDON (ICIS)--The premium for low density polyethylene (LDPE) film over other polyethylene (PE) film grades has fallen to its lowest level in two years, as producers kept a rein on price increases in the first quarter of 2012 to boost demand, industry sources said on Thursday.

In the first quarter,  average LDPE prices rose only by 2% in northern Africa, while linear low density polyethylene (LLDPE) film and high density polyethylene (HDPE) film prices increased by 9% and 8% respectively, closing the gap with LDPE.

The average premium between LDPE and LLDPE film prices in northern Africa is now $70/tonne (€53/tonne), while between LDPE and HDPE film it is $20/tonne.

LDPE-HDPE differentials closest to the above level were previously seen in 2009, with the LDPE premium over HDPE at $40/tonne in late December 2009.

LDPE-LLDPE premiums climbed to $80/tonne early in February 2010, with the premium at $55/tonne in late January that year.

LDPE price increases in the first quarter of 2012 have been comparatively low because of the slow demand for the grade in Africa. Producers and distributors importing into Africa acknowledged in December last year that LDPE was still too expensive for the African markets, despite a price drop of up to 15% in 2011.

This was because converter usage of LDPE in Africa declined as prices climbed in the first half of last year, and did not pick up in the second half despite falling prices.

Buyers considered the grade to be too expensive compared with LLDPE and HDPE in the second half of 2011. Many shifted to using LLDPE for making water pouches and plastic bags, some of the biggest packaging applications for LDPE until then.

Nevertheless, LDPE has long been expected by market players to retain a premium over other film grades after the slight price correction in the first quarter, according to their 2012 outlook for Africa.

Industry sources maintain that future LDPE premiums in Africa are likely to depend on supply trends. There are two LDPE projects underway in Saudi Arabia and Qatar – two of the main suppliers of LDPE into Africa –  which are set to increase the combined LDPE capacity in these countries by 600,000 tonnes/year.

However, these are minor when compared with projects in the pipeline for LLDPE and HDPE.

Some producers still remain flexible on LDPE offers into Africa, while others argue the premium will rise again if Saudi Arabian volumes are shifted to China or the tight LDPE market in Europe.

Many acknowledge that although it might be a tight balancing act between supply and demand in the LDPE market, the fall in the premium might be over.

"There was tremendous weakness in the LD market but [not] anymore, [but] the demand for LL continues to be better than for LD," said a Middle Eastern producer.

LDPE spot prices are at $1,480–1,550/tonne CFR (cost and freight), LLDPE at $1,430–1,460/tonne CFR and HDPE at $1,480–1,510/tonne CFR in northern Africa, according to ICIS.

($1 = €0.76)

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