Outlook remains bleak for South Africa PE, PP markets

03 May 2013 16:11  [Source: ICIS news]

By Jo Pitches

LONDON (ICIS)--The outlook for the South African polyethylene (PE) and polypropylene (PP) markets remains gloomy as a result of the global economic downturn, participants said this week.

The situation is exacerbated by customers’ expectations of prices softening in the coming weeks, the fluctuating exchange rate of the South African rand against the US dollar, and the forthcoming South African winter, traditionally the slow season for PE and PP business.

“It’s pretty bleak,” a trader said on Tuesday this week. “People don’t order truckloads, it’s hand to mouth buying. There are no real shortages. We're trying to get rid of what's on our floor. We've sold a little bit, but people are very cautious.”

The source added that demand traditionally slackens off in the summer and tends not to pick up again until October.

A second trader said: Demand is still flat. The year to date, it’s been flat compared to the same time last year. Customers have a perception that prices have dropped because of [lower] dollar prices, but if you give prices in rand, because of the exchange rate, it’s not such good news.”

A second trader/distributor said: “We haven’t sold this week, our price quotes were rejected. Customers are expecting prices to come down further, they’re not buying. It’s [happening] across southern Africa, even up to west Africa.”

On 24 April, a PP buyer said it expected South Africa domestic prices to soften in June because of poor demand.

The buyer said: “I hope for 5% lower prices in June from domestic producers. There was an increase of 8-9% earlier this year. Producers rapped us on knuckle for not sticking to the agreement  for offtakes, but our business is very slow, and local producers have high inventories.”

While a major South African producer has maintained steady low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) prices for several weeks, elsewhere in Africa PE and PP prices have fallen, tracking lower prices in the Chinese market stemming from lacklustre demand and softer feedstock costs.

A number of Middle East and African producers predict African PE and PP prices “bottoming out” in May or early June as margins are already squeezed and demand is expected to pick up.

When asked whether African – including South African - PE and PP prices could start to climb in the coming weeks, the second trader replied on Tuesday: “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 intself.”

When asked about producers’ squeezed margins and their reluctance to lower prices further, the source said: “Margins are a little bit under presusre, but not as much as they say.

"In 2009 we could see what the true margins of our suppliers were. Suppliers are comfortable at this [current] level. They can move [prices] down more. I don't have inside info, but by my own calcaulation, they’re now $100/tonne (€77/tonne) above where they were in 2009. And they could still make a living then.

“The economic downturn is not over yet,” the source concluded.

In April, prices for LDPE film were assessed by ICIS at rand (R) 13,750-14,000/tonne ($1,536-1,564/tonne) FD (free delivered) South Africa, LLDPE film at R14,650-14,900/tonne FD South Africa and HDPE film at R14,300-14,800/tonne FD South Africa.

April prices for homopolymer raffia were assessed at R14,000-14,500/tonne FD South Africa, and block copolymer at R14,500-14,900/tonne FD South Africa.

($1 = €0.77, R8.95)

By: Jo Pitches
+44 208 652 3214

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