25 July 2012 16:12 [Source: ICIS news]
By Cuckoo James
LONDON (ICIS)--Kenyan polyethylene (PE) and polypropylene (PP) import markets are expected to pick up in August, after being weighed down by poor demand in the first half of the year because of economic and logistical factors, industry sources said on Wednesday.
Accordingly, prices are expected to increase from their current levels, which are widely considered to be way below PE and PP offers in other African countries.
Low offers from a couple of Middle Eastern producers in particular have kept prices at keen levels in July, despite an uptick in spot prices elsewhere in Africa following the hikes in crude oil and Asian naphtha prices, industry sources said.
Low density polyethylene (LDPE) is still available from a Middle Eastern producer at the relatively low price of $1,320/tonne (€1,096/tonne) CFR (cost & freight) in Kenya, according to distributors, while linear low density polyethylene (LLDPE) is being sold at $1,220/tonne CFR. A second Middle Eastern producer is offering copolymer PP at $1,360/tonne CFR.
“Demand has been poor in East Africa. Borrowing rates are very high. The market is so small, [and] these deals are good enough for them [Middle East producers],” said a US-based distributor that exports to eastern Africa.
Industrial activity in Kenya is concentrated around Nairobi and Mombasa and is dominated by food-processing industries that require film packaging. Agriculture, which is the second largest contributor to the country’s GDP, requires a good supply of homopolymer raffia PP for bags to store grains.
Nevertheless, converters in Kenya were holding back on purchasing in the first half of the year as the downstream food packaging and agricultural industries suffered from tightening money supply.
Economic growth decreased to 3.5% in the first quarter from 5.1% a year ago, making it the slowest first quarter growth since 2008 as high commercial lending rates adversely impacted businesses in the country.
The country’s Monetary Policy Committee cut the central bank rate by 150 basis points to 16.5% on 5 July, and with credit now more likely to be available throughout the value chain, converters could flock back to get product, distributors based in Kenya said.
Demand is also expected to rise as a few big buyers have nearly exhausted their high inventory levels built up from the arrival of successive vessels immediately after a period of congestion at the port of Mombasa earlier in the year.
“One of the buyers was holding 2,000 tonnes of PP raffia in their factory, and even offered to sell us product. For the last couple of months, people have not been booking, but we expect there will be good bookings in August as people who have utilised the high stocks are likely to come back and buy,” said a distributor based in Kenya.
Despite the overall demand situation looking set to improve, buyers could still take a while to accept the higher import offers that are likely to hit the east African market in August, industry sources said.
“We import the stock here, and higher-priced material is on its way. But prices in East Africa have been exceptionally low as some Middle Eastern producers are still offering at low prices,” said the Kenya-based distributor.
Weekly South Korean PP offers into the region are already way ahead of the mostly monthly Middle Eastern offers and are at $1,460-1,480/tonne CFR eastern Africa for copolymer PP. Homopolymer PP from India, also offered on a weekly basis, is at $1,480/tonne CFR eastern Africa.
“I don’t think the market has tuned into the new numbers. If you talk to the East African customers the numbers are too low,” said the Indian producer.
The market is waiting for producers in the Middle East to announce their monthly August offers before they accept any higher offers, industry sources said.
“We will have to see what the Middle East prices are. If their offers are as high as in China, then customers will have no option but to buy,” said the Indian producer.
($1 = €0.83)
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