FocusS Africa polymers slow on seasonal lull, weak currency

28 May 2013 13:41  [Source: ICIS news]

By Jo Pitches

LONDON (ICIS)--A combination of the typical winter season lull in demand, the rand falling to a four-year low and concerns of strikes and associated violence in the mining sector spreading to other industries are all taking their toll on the South Africa's polyethylene (PE) and polypropylene (PP) markets, sources said this week.

"The markets are soft and slow and have been for some time now," a PP buyer said on Monday. "Nothing has changed since we last spoke. Yes, the ZAR is at a four-year low with strikes in the mining sector which can spread to other sectors.

"We are entering what is known as 'strike season' with demands of workers being very high and unrealistic, with employers being unable to meet the high demands of workers. This invariably leads to strike action and possible violence which does dent our image and negatively affects the rand."

On the same day a distributor said: "The rand is at a four-year low, everyone is feeling gloomy. Strikes are happening. It’s not a good picture."

Power cuts are also disrupting business and home life.

"They’re playing with the electricity supply," a second distributor said on Monday. "By the time the real cold [weather] strikes....[things will be worse]."

The source went on to explain that for the last five years, electricity supply has been unable to meet demand.

"Electricity supply is very tight," the distributor said. "There are no major blackouts at the moment, but it hasn't been really cold yet. It’s been something since 2008, there are just not enough power plants in South Africa. Demand outstrips supply of electricity. It’s a good job business is not too good, or there'd be trouble."

While one major domestic producer has rolled over its PE prices since March, this combination of negative factors is leading some participants to think that prices could soften.

The first distributor said: “It’s hard to argue [for stable or higher prices], this might not be the bottom in terms of prices. This is just my gut feeling. There could be another drop before it prices stabilises."

However, the PP buyer is less pessimistic regarding the weak rand.

"The worsening exchange rate should be bad news for importers, but what we have seen in our sector is that overseas-based exporters to South Africa just reduce the dollar-based price to compensate for any negative exchange rate fluctuations.

"I don’t know of any potential strikes in the PE/PP sectors, and the only effect that I am aware of [stemming from the industrial action in other sectors] would be the worsening exchange rate."

By: Jo Pitches
+44 208 652 3214

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