FocusFall in foreign currency reserves, strike hit Egypt PE imports

20 February 2013 17:28  [Source: ICIS news]

By Cuckoo James

LONDON (ICIS)--Egypt's converters are struggling to obtain US dollars to pay for polyolefin imports into the country, and import trade is further hindered by a backlog at the Sokhna seaport due to a recent workers' strike, industry sources said.

Polyolefin - polyethylene (PE) and polypropylene (PP) - buyers in the country had been vocal since late last year about the adverse impact of renewed political unrest on the country's economy, and especially on the Central Bank of Egypt’s (CBE) standing with banks abroad.

Moody's Investors Service downgraded the ratings of five Egyptian banks on 14 February. In addition, foreign currency deposit ratings of these banks were downgraded.

Egypt's foreign currency reserves have fallen to $13.6bn (€10.2bn) at the end of January, less than the $15bn threshold required to cover three months' worth of imports.

The lack of availability of US dollars has meant many polyolefin converters were unable to place import orders in February.

A Middle East PE producer said it was unable to conclude any sales in Egypt, even after announcing a comparatively low price of $1,480/tonne CFR ­­­­­(cost & freight) Egypt for low density polyethylene (LDPE).

The producer said: "We were unable to sell as our customers have financial problems. There is no dollar available there. We went for low price but nobody was willing to buy. People don’t have money."

CBE governor Hisham Ramez is said to have promised to prioritise access to foreign currency for imports of basic foods, industrial inputs, fuel, medicines and fertilisers. Local media have quoted him as describing the Egyptian economy as being in a "crisis management mode".

Meanwhile, the relatively stable Egyptian pound (EGP) has fallen by 9% since the end of December 2012, while polyolefin import prices in US dollar have increased, adding to the rise in cost for converters.

The producer added: "There is the problem with the exchange rate, it is going up and down. The production cost (for converters) will become high as a result of the higher EGP price they have to pay."

Copolymer PP import prices into Egypt have increased by approximately 8% from $1,515/tonne CFR Egypt in mid December 2012 to $1,630/tonne in mid-February 2013.

An Egyptian converter said: "I don't think higher offers have been concluded. Prices have really increased."

A Middle East PP producer said: "We offered, but have difficulty in selling because Sokhna was closed, because few banks were blacklisted, because of the instability there."

The Egyptian economy has been suffering from more than two years of political turmoil. The renewed unrest since late last year has exacerbated Egyptian converters' difficulties in accessing letters of credit (LC).

Egypt's expected signing of a $4.8bn loan agreement with the IMF has been delayed by a worsening political climate. Parliamentary elections are expected in April but no official dates have been confirmed.

An Egyptian polyolefin producer said: "The political situation is bad. The people [converters] are running the factory at a minimum [since] if I have money, i will not invest now. Until the situation is over. The situation is very complicated."

Meanwhile, some converters and importing producers are able to bypass the congestion at the Sokhna port by diverting cargo to Port Said and Alexandria port. However, this is being done at extra expense, they acknowledged.

A Saudi Arabian polyolefin producer said: "We are able to sell, because there are some customers able to take the cargo to other ports."

($1 = €0.75)

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

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