FocusSasol wins back market share on competitive LDPE prices

06 September 2012 16:16  [Source: ICIS news]

By Cuckoo James

LONDON (ICIS)--South Africa's Sasol has won back the low density polyethylene (LDPE) market share it previously lost by offering at very competitive rates, the country's importing distributors said.

This has been helped by a surge in its LDPE stock levels over the course of the past few months, even before a planned 48,000 tonnes/year feedstock ethylene purification unit has become operational, the sources added.

Nevertheless, both importers and converters are now waiting to see whether Sasol's current good level of supply might be interrupted by its annual maintenance shutdown and create a tightness in the local market, as has happened in the past.

Sasol's polymer supply had been suffering for a while from lack of feedstock ethylene stability.

An importing distributor said: "Once a market that was C2 [ethylene] limited and which limited the ability of the domestic producer to sell is now switching to a market where the domestic producer has enough capacity to take back the market."

In September, Sasol announced a price decrease for the third month in a row, reducing its LDPE offers from South African Rand (R)12,450/tonne in July to R11,450/tonne ($1,360/tonne) in September.

Meanwhile, import prices have increased from $1,380/tonne CFR (cost and freight) southern Africa to $1,405/tonne on average on rising international feedstock costs.

Sasol's offers are on a free delivered basis, while importers have to factor in additional shipping clearance, storage and delivery costs, as well as possible fluctuations in rand/US dollar rates.

A second importing distributor said: "They are offering LDPE at below import parity level."

The first distributor added: "I would say their aggression over the last few months has increased their market share, and it has increased it to such an extent that their absolute volumes into South Africa has improved. Yes, the LDPE pie has got smaller, but their increasing market share has counteracted that."

Any change in Sasol's supply creates tightness in the South African market very quickly, especially when imports are tight.

Sasol is the sole producer of LDPE and LLDPE in South Africa, and is estimated to hold 80% of the PE market share, along with high density polyethylene (HDPE) producer Safripol which secures its ethylene from Sasol.

The company has shut down the monomer units at its Secunda synfuels complex from 31 August to 29 September for major scheduled maintenance, but said it will be able to "flex the source of ethylene" and ensured its customers that orders will be fulfilled.

Sasol has declined to confirm if its LDPE and linear low density polyethylene (LLDPE) units would be shut down during the month-long scheduled maintenance.

The second importing distributor, which shares some customers in common with Sasol said: "I don’t know [if the PE plants will be shut]. The customers seem to be confused as well. Obviously Sasol is not disclosing much to them either."

"There has normally been a problem for the past seven years. Maybe it's going to be the first year there's going to be no problem," said a third importing distributor.

Last year, Sasol's LDPE supply failed to improve after its annual maintenance shutdown in September and ongoing problems with ethylene supply. In a letter to customers dated 2 December 2011, Sasol confirmed its supply shortage was likely to last at least until March 2012.

Analysts tracked LDPE supply shortage to instability at Sasol's coal-to-liquid (CTL) plant at Secunda, Mpumalanga, located approximately 200km from its LDPE plant at Sasolburg.

The company itself has confirmed a surge in its LDPE supply since then and more feedstock stability. A source at the company said: "LDPE supply has improved due to much better stability from our upstream supplier [Sasol Synfuels] and operational improvements in our own conversion plants. Our EPU5 [fifth ethylene purification unit] unit is still under construction, so the stable supply is yielded from our existing assets."

However, industry sources are hesitant to believe that Sasol's days of ethylene instability are over. The build up in stock might be partly attributed to a slow year for polymers in South Africa, the sources added.

Concerns about South Africa's business environment have resulted in diminished demand from retailers for plastic packaging.

"Their stocks have built up, not exclusively as a result of more ethylene. There is a degree of poor sales in the market," the first distributor added.

($1 = R8.42)

By: Cuckoo James
+44 (0) 208 652 3214

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