Established producers losing out to competitors in Africa PE markets

Focus article by Matt Tudball

LONDON (ICIS)–Established producers in the African polyethylene (PE) market are in danger of losing market share to aggressive competitors and eager newcomers, market sources said Wednesday.

A Middle Eastern producer supplying low density polyethylene (LDPE) and linear low density polyethylene (LLDPE) to markets across Africa said it has seen some of its market share eaten into by other producers offering considerably lower prices.

As new Middle Eastern capacity comes online, some Middle Eastern suppliers are entering markets in Egypt and north Africa and looking to get a foothold by undercutting established suppliers.

“Competitors [in the Egyptian market] give lower prices than us by up to $200/tonne,” the producer said.

ICIS saw spot prices in the Egyptian LDPE market in the region of $1,200-1,250/tonne CFR (cost and freight) Egypt, while some producers were said to be offering as low as $1,100/tonne CFR Egypt – not exactly a $200 difference, but substantially lower nonetheless.

However there was not further confirmation from the wider market that business was being concluded at these lower levels, especially as demand in Egypt is being impacted by on-going currency problems.

In other regions, existing producers are facing pressure from newer supply channels, as weak demand in the Chinese market sees Asian suppliers seek out alternative sales opportunities, and cheap feedstocks and abundant supply in the American markets have led to increased exports of US material to Africa.

A large suppler to the West African market said it was struggling to sell 50% of its allotted volumes to countries such as Nigeria because of cheaper US exports.

“There is an abundance of cheap US material in the market. I have to give a very cheap price to entice buyers, [US offers are the] same as Chinese prices almost,” the supplier said.

As well has having comparable delivery times from the US to West Africa compared to Middle Eastern and Asian suppliers, American producers benefit from considerably cheaper feedstock costs, allowing them to lower their offer prices to the required level to attract business away from established suppliers in markets such as East and West Africa.

It seems the presence of US material in the global market will only increase in the coming years as production capacity in the country increases.

Speaking at the Latin American Petrochemical (APLA) conference in Cancun, Mexico, Bob Bauman, president of Polymer Consulting International said Gas-based players in North America are bringing on far too much ethylene and polyethylene (PE) capacity with seven new crackers under construction (including Braskem Idesa’s Ethylene XXI in Mexico), along with expansions at existing facilities.

Bauman sees around 12m tonnes/year of new ethylene capacity, and 9.2m tonnes/year of new PE capacity in North America through 2018, with about 40% of the PE capacity being exported.

While China and Asia will remain key markets for US material, there will still be enough product being sent to Africa to cause a headache for Middle Eastern producers.

Some traders in the African market are already considering the rise of the Iranian suppliers as sanction easing gets underway.

“US is coming with cheap materials and Iran is coming with cheap materials. It’ll be interesting,” the trader said.

However, as the year-end approaches, buyers are keen to keep inventories low, and seasonal demand in some markets has dropped off.

“Buyers are very cautious,” a PE and polypropylene (PP) trader in East Africa said. “Now [demand] has already finished. From 15 December we’ll see holidays [in East Africa] for a month, so we don’t see movement back till next year now,” the trader added, expecting the rest of the year to be very quiet.

When demand does return to the African markets in 2016, it may turn out that the supply required to meet it comes from many and varied sources.

Additional reporting but Joseph Chang