June PE, PP “price war” in much of Africa

04 June 2013 15:53  [Source: ICIS news]

LONDON (ICIS)--Following the majority of polyethylene (PE) and polypropylene (PP) producers, who increased their African June offer prices by $30-50/tonne from May levels, buyers in much of Africa are holding back on the expectations of prices softening in July and August, resulting in a “price war”, participants said this week.

“Demand is low now this month,” a distributor based in East Africa said on Tuesday. “All producers have excess inventory to sell, so it’s a price war going on here. Demand is very low, I am also struggling to place volumes in the market as of now.”

Producers cite buyers' low stocks when justifying June price hikes.

Many buyers refrained from purchasing from mid-March until early May on the expectation of both April and May offer prices falling.

African PE and PP prices dropped by up to $100/tonne during the last two months because of softer feedstock costs, lower polyolefin prices in Asia, and weak demand in much of Africa.

The first half of May saw an uptick in demand as buyers were keen to purchase, anticipating a seasonal increase in both requirements and prices in June.

However, their attempts to restock were largely futile as many producers sold out early in the month.

Producers now speak of good seasonal demand, particularly in North Africa where, in Muslim countries, buyers are keen to restock before Ramadan in July.

However, traders and distributors talk of hand-to-mouth buying and customers with inventories refraining from purchasing.

“Basically it's a question of supplies,” a second distributor said. “Supplies are short; producers are comfortable with their inventories. Customers with inventory [sufficient stocks] are waiting; others are just buying hand to mouth. Crude [price] is coming off, naphtha [price] is coming off [leading to the expectation of softer PE and PP prices].”

Furthermore, there is an expectation that demand and prices will soften from July, when Ramadan, the rainy season in West Africa, and the holiday season in Europe, which influences the North African market, coincide.

This period also encompasses the low winter season in South Africa

“West Africa is stocked up for two months,” the second distributor added. “The rainy season is low [the low season]; it affects the transport sector. The leanest season [in terms of demand] is June to August.”

“North Africa is very quiet,” the source added. “High prices are deterring people. There’s a $40-50/tonne increase; buyers are not prepared to pay.”

Meanwhile, a PE producer believes that demand is healthy for now: “Demand is good. It’s seasonal demand,” the source said. “We will see it go back to normal during Ramadan, and the summer vacations. From July onwards, demand could subside.”

 “A lot depends on second half of June,” the second distributor concluded. “If Middle East suppliers are not able to sell off their stock.... [they might have to soften prices]”

By: Jo Pitches
+44 208 652 3214

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