Africa PE markets cautious as they await September offers

Focus article by Linda Naylor

LONDON (ICIS)–Polyethylene (PE) buyers in Africa are waiting for new offers for September, to have an idea of where prices will land once new business gets under way, sources said on Wednesday.

There was no confirmation of September offers from international sellers, but word was getting round that one major PE producer was targeting a rollover from August. Others were expected to follow.

“I have heard rollover offers into west Africa,” said one trader, “and possibly a $10/tonne down in one case, but when it comes down to it, it’s all a question of supply and demand.”

Demand in much of Africa is cautious, but supply is not long either, so while some sources are pushing for lower prices, and fairly confident of flexibility from sellers, there is no expectation of significant price erosion.

“It’s a bit too early to say where prices will land in September,” said another trader. “Areas where the euro has some influence will probably see a drop in dollar terms because of the exchange rate. Everybody is very cautious.”

On Wednesday the dollar was trading at $1.318 against the euro. Two weeks ago it was at $1.3366.

Credit availability issues in Africa are also leading to caution.

“Credit is tight,” said a distributor.

“There are problems with payment,” said one of the traders, talking of business in North Africa. “Many economies are unstable and the situation in Libya is not helping.

High prices were also deterring buyers, as few saw the possibility of prices moving up further. This sentiment also affected demand, as nobody was prepared to put material into stocks with the possibility of lower prices to come.

“These are the highest prices for five years,” said another trader.  “People can’t pass them on to their buyers.”

Buyers have been complaining of high prices for some time, and some are expecting levels to ease as crude oil and naphtha prices fall. Many eyes are on Asia, where Southeast Asian PE buyers have also opted to stand on the sidelines waiting for prices to drop for September-loading cargoes.

Offers for September-lifting PE resins from southeast Asian producers typically begin at the start of each month, and many buyers expect September-loading cargoes to be offered lower, mostly from the Middle East producers.

Buyers are under the impression that Asian PE prices should see a downward correction of up to $20-30/tonne as a result of bearish market sentiment in China, the falling crude oil, naphtha and feedstock ethylene market, and easing of tight supply in the region.

Europe is also looking for lower prices, and sources are expecting a drop in the September ethylene contract, with buying remaining cautious until a clearer picture emerges.

PE is used widely in the manufacture of household goods, packaging and in the agricultural sector.