30 April 2013 17:47 [Source: ICIS news]
LONDON (ICIS)--The majority of polyethylene (PE) and polypropylene (PP) producers supplying the African markets feel that the downward price trend will cease in May and that values will then start to climb again, they said on Tuesday.
They cite low prices in Asia, already-squeezed margins and signs of demand starting to return as justification.
“There’s been a decrease of $50/tonne,” one PE/PP producer said. “I think this is the bottom for May, prices could be stable in May and June, could even go up in June. There’ll be no further decrease.”
A second PE/PP producer agreed. “We expect it [prices] should bottom out by the end of May, unless naphtha and [crude] oil [values] comes down more.”
“PP and PE prices came down around $50/tonne for Asian material,” a third producer said. “If you look at where monomer prices are now in India and China, they won't get much below $1,400/tonne.”
With the Middle East the major PE/PP supply source to most of the African markets, and with China the main Middle East export market, African PE and PP prices tend to track the direction of prices in China, albeit often with a time lag.
Producers also speak of compressed margins when arguing against further price decreases.
“Producers' margins are already squeezed. They [prices] shouldn't really go down any more,” the source concluded.
It appears that, with many buyers having held back for several weeks because of the expectation of lower prices in May, they now need to purchase some volumes.
The first producer said: “Demand should be reasonable during May. Customers believe May is rock bottom [in terms of prices]. Buyers need material, they can't hold back much more.”
“Demand is there, it has been low during the last few weeks,” the second producer said. “They [buyers] do actually need material now.”
However, one producer admitted it does not yet have feedback from buyers regarding its May offer prices.
Furthermore, other participants maintain that some buyers are still holding back or buying on a hand to mouth basis as they expect prices to fall further still.
One African producer said: “While [some] customers have no option but to buy, the problem is that the physical delivery will take two months, and buyers feel the price may drop during the period, also that demand may fizzle out by that time.”
A trader based in South Africa also holds a similar view: “Customers are expecting prices to come down further, they’re not buying, across Southern Africa, even up to West Africa.”
When asked about the idea of prices “bottoming out” in May, the source replied: “It’s a bit logic, a bit wishful thinking. China is not buying as much as they were supposed to. China suppliers are offering to Africa as there’s not much demand from China itself. Margins are a little bit under pressure, but not as much as they [producers] say.”
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