Price and market trends: South African PE, PP import markets battle difficult conditions

14 June 2013 09:49  [Source: ICB]

Volatile currency conditions are making life difficult for distributors as ongoing industrial action unsettles markets

Business in the South African polyethylene (PE) and polypropylene (PP) import markets is being severely hampered by a combination of a very volatile but weak rand, the typical winter lull, power cuts and concerns about ongoing strikes and associated violence in the mining sector spreading to other industries, sources said in the week ending on 9 June.


 A combination of factors is severely stressing the market

Copyright: Rex Features

"There's some demand, but it's very limited," a trader said. "It's lower than last year, each customer is saying. Maybe 10% less [demand] than at the same time last year. It's [because of] higher prices and a combination of bad things. Weaker demand, higher prices, upheaval, weakening of rand, the [low] winter season..."

"It's been impossible to close any deals with customers, because of the extreme volatility of the rand," a distributor said. "It's always been volatile, but the last week or so its rocketed from 9.80 [against the US dollar] to 10.20 in two days.

"It settled at the 10.20 level for a couple of days, then we've seen some strengthening, to 9.85."

"Everyone's glad it's come back," the source continued. "But it's a bittersweet taste. We can't do any business. You're continuously having to revise your price based on the exchange rate. It's moving all the time, within a day. Customers don't know where they stand, and nor do you."

A trader said: "The rand devalued by 15% [against the dollar] in a week. It's come back a bit since the low at the end of last week. It takes a while for customers to understand. Importers are facing a difficult time, [the exchange rate is] so volatile. Tomorrow things could be better or worse."

In June Reuters reported that, ­according to a poll it has carried out, the rand is likely to remain weak for the next year on expectations of a persistently wide ­current account gap, and the threat of ongoing industrial action in the mining sector exacerbating the situation.

Much of the weakening of the currency is attributed to the strikes and associated violence in the mining sector, and fears it could spread to other industries.

On 3 June Reuters reported that Glencore Xstrata sacked 1,000 workers across three of its chrome mines in South Africa for going on illegal strike.

On the same day it reported that a shop steward from South Africa's National Union of Mineworkers (NUM) was shot dead at a Lonmin mine. There are fears that the ongoing industrial action could further damage the country's credit rating.

"The rand is weaker, and the banks expect it to stay weak for a month or so," a second trader said. "People starting striking in August [last year] and they haven't stopped.

"The government isn't taking a stance on it. [The country's credit rating has] already been downgraded a notch."

The source added: "We're importers, people are shaking their heads at our prices, but it's due to the rand.

"People [producers in other regions] are selling at high prices in Africa, thinking they're behind the knowledge that prices are coming down in the east. Sellers don't want to sell at lower prices, buyers don't want to buy at current levels."

Furthermore, power cuts are exacerbating the difficulties.

A distributor said: "The electricity supply is not enough. The demand on the power grid in winter is strenuous, and plans for building new power stations are far away in the pipeline.

"There are sporadic cuts [in power], which influence the manufacturing sector, outputs, [and other industries]"

"It's called load-shedding," a trader said. "It's a process where the local electricity supplier cuts off the power for a certain number of hours per day per week.

"Even if customers know when the power cut will be, it's a ­problem."

"Right now we're really ­fighting," the distributor went on to add.

By: Jo Pitches
+44 208 652 3214

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