23 July 2012 12:29 [Source: ICIS news]
LONDON (ICIS)--South Africa's Sasol has reduced its August polyethylene (PE) prices for domestic business but imports for the month are set for a price hike, industry sources said on Monday.
The August price drop comes in the wake of a quiet market where demand has been supressed by seasonal and economic factors, and the competition for market share between domestic and importing producers is fierce. The company had rolled over its offers in July.
Sasol's August low density polyethylene (LDPE) offers are at South African Rand (R) 11,650/tonne ($1,407/tonne), down R600/tonne from R12,250/tonne in July.
The company's linear low density polyethylene (LLDPE) offers are at R 12,650/tonne for August, down R400/tonne from R13,050/tonne in July for its medium-size customers.
The price drop is unconfirmed at the source, but widely confirmed by other market players in South Africa.
"They [Sasol] are pricing aggressively in a wider market than we have seen for some, even in Malawi [and in] Zimbabwe. They are not making money, the Sasol board must have said this cannot continue," said an importing distributor.
In a letter to investors dated 28 June, Sasol's CFO Christine Ramon admitted its polymers division "continued to experience margin pressure in line with the global polymer industry."
The company, however, is currently said to have no supply issues, unlike in the recent past where it was tight on LDPE and LLDPE.
"Sasol has no supply issues, they seem to have enough product, because the market is so slow, they have been calling low numbers. The message is whatever you want, we can accomodate it," said a second importing distributor.
Meanwhile, import prices are on the rise as the cost of production increases in Asia and Europe because of the upturn in feedstock ethylene spot prices, and many importers are caught between the rise in prices globally and the downturn in South Africa.
The rise in import prices is exacerbated by high currency volatility between the rand and the US dollar.
Imports are sold in the local currency on a free delivered basis, after factoring in additional shipping, clearance, storage and delivery costs.
The competition from importing producers, especially from the additional production capacity at the new 300,000 LDPE plant on stream in Qatar, could have been a factor in Sasol's decision to lower prices, industry sources observed.
In the CFO letter, Ramon acknowledged there was "increased competition from new producers."
A third importing distributor said: "The import pressure is coming from QAPCO [Qatar Petrochemical Co]. In the LDPE market, I see the sentiment changing. I see Sasol being more aggressive in its defence of its LDPE market share. This could be because I think they are looking to move solely to LDPE."
($1 = R8.28)
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