22 August 2012 16:26 [Source: ICIS news]
By Cuckoo James
LONDON (ICIS)--A possible hike in the September European ethylene contract price and ongoing port congestion in Saudi Arabia will put upward pressure on African polyethylene (PE) import prices, producers and distributors said on Wednesday.
A week ago, the market was more doubtful of pushing through a price increase in September because of slow demand in Africa and an uncertain economic outlook in the key market of China.
Converters in Africa had pre-bought in July, resulting in lower-than-expected sales in August. Slow sales were also attributed to Ramadan.
There is widespread expectation that the European ethylene contract price will rise in September on the back of upstream gains. The August contract price had settled up by €140/tonne ($175/tonne) at €1,175/tonne FD (free delivered) NWE (northwest Europe), leading to an increase in PE prices in Europe.
"The European monomer is expected to go up and so the PE pricing direction will be upward. If the Chinese market picks up, the hike would be even more," said a Saudi-based producer that exports to Africa.
Meanwhile, ongoing congestion at Saudi Arabia's Dammam and Jeddah ports has created a delay in dispatching polyolefin – PE and polypropylene (PP) – containers from the country.
Saudi Arabia remains Africa's chief source of polyolefin imports. The Saudi-based producer said: "We do have a backlog and we expect the shipments to be delayed by two weeks."
The congestion, which began just before Ramadan and has continued because of shorter working days and subsequent Eid holidays, has resulted in long queues of containers waiting to be discharged or transferred to other ports.
Customs clearance and deliveries are being affected as many support workers are on holiday, the Saudi-based producer said. The Saudi Ports Authority could not immediately be reached for a timeline, but Saudi-based producers said they expect the backlog to be cleared up soon.
The port congestion has been exacerbated in early August because of Eid celebrations, said a distributor, with August cargo expected to arrive only by early October.
Lead times are normally 18-30 days during normal times, the source added. Similar congestion took place at the Dammam port last year during Ramadan.
Many polyolefin distributors that regularly import into Africa are counting on pockets of short supply being created by the Saudi port congestion in order to pick and choose business only at higher levels.
"Whoever is holding the inventory in the local markets will be able to pick and choose customers," said the distributor. The source went on to add that high density polyethylene (HDPE) was especially in shortage.
A global distributor that exports to Africa regularly said it remains concerned about the poor buying interest in Africa, but expects the port congestion to support stable-to-firm prices as there is bound to be shortages in certain areas.
"Many of these suppliers are not taking new business because they have a backlog," it added.
Despite better clarity on a possible upward pricing direction, the producers and distributors are quick to dismiss a three-digit hike or increases on a similar scale to what is being expected in Europe.
"They [producers] might come out with a $30/tonne increase, and the smarter ones might roll over later on. Customers have just bought at lower prices, so they are not interested in buying," said the second distributor.
"We are looking at monomer movements in Europe. So PE pricing ideas would be a bit less than in the EU, $50-70 /tonne would be feasible in Africa. Of course if China is not buying, it could dampen the price discussion," said a second Saudi-based producer.
($1 = €0.80)
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