OUTLOOK ’14: Two key factors could impact Africa PE, PP markets

By Jo Pitches

LONDON (ICIS)–There are two main factors that could impact both business and prices in the African polyethylene (PE) and polypropylene (PP) markets next year – the European import duty and new capacity coming online in the Middle East and Asia.

While these events will take place in other regions, the global nature of the polymer markets means that the impact could also be felt in Africa. This is particularly the case as Africa is a net importer of PE and PP with the Middle East the chief source, while volumes will also arrive to parts of Africa from Europe and Asia.

From 1 January 2014, the European duty on polymer imports from Gulf Cooperation Council (GCC) countries, among others, will rise from its current level of 3% to 6.5%.

To compensate for the tax increase, producers in the affected countries are expected to raise their PE and PP prices for Europe.

A knock-on effect in other regions is possible as European producers – and others – might also increase their polymer prices in order to improve margins.

A Middle East PE/PP producer supplying the African, Middle East and Asian markets said: “Europe prices will be high, even local [producers’ prices]. I think all [suppliers] will increase their prices, European [producers] and importers, because of the 3.5% increase.”

“Local producers will benefit,” the source added. “It could be another reason why people are buying now, before it [the duty change and subsequent price hike] comes into effect.”

A second Middle East PE/PP producer said: “Of course the Europe tax will have an impact in the first quarter. I know people that have put off buying in December from the GCC because it is going to arrive in January when the new duties take effect. People [producers] will try and compensate somehow, they need [to compensate for] the extra duty. European [producers] will send prices up.”

Demand is likely to be negatively impacted to begin with, according to the source. “It’ll be sticky for a couple of months,” the producer said. “Initially we’ll see a drop off [in demand] as people are concerned about paying additional costs.”

The north African market in particular is closely linked with the European one, and therefore especially susceptible to the influence of European price movements.

A PE/PP distributor in the north African market said: “There will be an effect [on African prices], but it will be short term.”

The source added that linear low density polyethylene (LLDPE) prices may be particularly impacted as the Middle East is a key supplier.

“It’s [LLDPE] 80% imported from the Middle East,” the distributor said.

Furthermore, the European duty increase could change global trade flows, participants in the African markets say.

The first Middle East producer said: “Europe import duties will not affect us [in terms of demand]. We are in markets that are not price-driven. The applications [uses of PE and PP] are secure, but it [the change in European import duties] will change trade flows.”

In Africa, the main uses for PE and PP are for packaging and in the agricultural industry. Plastic bottles, water pouches, carrier bags, jerry cans and woven bags for grain storage are key products.

A second distributor in the African markets said: “The [global] trade flows will change because of new FTAs [free trade agreements] between [South] Korea and Europe/Turkey, and the change in duty structure from mideast to Europe effective from January 2014.”

The second factor which could start to impact global prices and trade flows from 2014 is new capacity starting to come online in the Middle East and Asia.

The global supply of polymers is expected to increase significantly over the coming years, possibly outweighing global demand.

The Borouge 3 complex in Ruwais, Abu Dhabi, is one key new project. It includes an ethane cracker, two Borstar PE units and a low density polyethylene (LDPE) unit. There are also two Borstar PP units with a combined production capacity of 960,000 tonnes/year, according to ICIS data.

Product from the plant is unlikely to be commercially available until the end of 2014. As a result, any effect on Middle East PP prices – and in turn, prices in Africa – is not expected to be felt until late next year.

A source at the producer in question said: “I can see the impact [on the markets] in the last quarter of 2014. It is [Borouge 3] a big job. [There are] five polymer plants, and four other ancillaries for Borouge 3. The plant will be running in the third quarter but the market won’t feel the volumes until late 2014/2015. It will have a big impact in the GCC. We’ll come in with LDPE, that will influence pricing.”

Regarding the extra capacities, a distributor in the north African market said: “North Africa could be affected. Where will they place that [extra] volume? It will be Turkey or North Africa.”