OUTLOOK '13: Africa PE, PP demand to grow, concerns in key economies

28 December 2012 15:10  [Source: ICIS news]

By Cuckoo James

LONDON (ICIS)--Strong demographics, a sustainable agricultural sector and slow shift to urban living is expected to support Africa's current polyolefins demand growth well into 2013, but uncertain political and economic environments in its key national markets remain a concern, industry sources said.

Also, no new polyolefins capacity additions are expected in Africa next year, and local supply is limited, making the region more and more dependent on imports from dominant Middle East and Asian producers.

Polyolefins - polyethylene (PE) and polypropylene (PP) - are mainly used in the packaging and agricultural sector in Africa, with high-end applications like automobile parts, made using PP, relatively unheard of. 

High density polyethylene (HDPE) and homopolymer raffia PP are especially in demand for manufacturing, respectively, consumer bottles, carry bags and jerry cans, and woven bags to store grain.

The demand for these grades could continue in 2013. Traditionally polyolefins demand growth has tracked, and often exceeded, GDP growth. The African Development Bank (AfDB) forecast a GDP growth of 4.5% in 2012, and predicts this will increase to 4.8% in 2013.

Some African countries are set to grow at a faster pace than others in 2013, albeit from a low base (see below right for AfDB estimates).

To be sure, geo-political factors remain an unpredictable variable in African GDP growth, and consequently the polyolefin market outlook, the Arab spring in northern Africa being a case in point which cut the northern region's growth in economic output to 0.5% in 2011.

Hence, Egypt's renewed political unrest and the impending, and possibly contentious, elections in Kenya in March next year could be a drag on these key African economies in 2013.

Having said that, Africa is occupied by more than 1bn people, making its potential polyolefin market size similar to those of India and China, and industry sources point out that demand for basic goods such as made with polymers are unlikely to dwindle.

"You cannot ignore the population there," a producer that has recently become more active in Africa said, adding that Egypt remains Africa's biggest market for PE, PP imports.

The producer said: "They cannot avoid consuming. People need to eat and by nature it [Egypt] is an agricultural country, they need homo raffia [PP]."

Africa's thousands of tonnes of PE and PP consumption is expected to continue into 2013, proven by the renewed interest among some Middle East players in expanding their presence in Africa.

Qatar Petrochemical Company (QAPCO) inaugurated its representative office in Cape town, South Africa on 12 January, 2012, describing this as a reflection of the strategic importance of the South African market and the southern African region in the near future.

Meanwhile, among some local polyolefins producers - these are primarily based in South Africa, Egypt and Nigeria - raw material cost and availability remains a primary concern.

Market sources maintain that PP supply from Egypt's Oriental Petrochemicals Co (OPC) has been "put on hold" for approximately a year now after the company stopped receiving feedstock propylene from Libya.

Libya's cracker at Ras Lanuf, which produces 170,000 tonnes/year of feedstock propylene, was shut down in February 2011 at the onset of the Libyan civil war and sources say there are "many issues" to resolve before restart would be possible, including feedstock specification issues and mechanical problems.

South Africa's Sasol has been incurring additional costs to improve their much-maligned feedstock ethylene, and consequently polyolefins, production output, and hopefully this will pay off in 2013.

In addition, Sasol's Ethylene Purification Unit (EPU5) - which will increase ethylene availability for its PE plants -  is expected to be operational in the second half of 2013.

However, in a trading update, Sasol summed up what could be the primary concern for participants in the African PE, PP markets: "We expect the global environment and South African economy to maintain a modest recovery... However, weakening demand in Europe and lower growth in emerging markets and the US remain a concern."

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

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