OUTLOOK ’16: Africa is an attractive but challenging market for PP, PE

LONDON (ICIS)–With an ever-increasing supply of domestic polypropylene (PP) and polyethylene (PE) and an influx of foreign imports, China’s position as the go-to market for exporters has taken a bit of a knock in recent years, leaving some suppliers to wonder what is next for their PP and PE exports.

Increasingly, thoughts are turning to Africa and its the continent’s population of 1.1 billion, whose need for plastics and packaging is growing yearly which its domestic production has no hope of meeting.

However, while countries such as Nigeria and its 167 million people, and Egypt, with its population of almost 84 million, may offer attractive alternatives to a slow China market, these countries and others in the region are not without their own challenges.

The main concerns market participants have about working in Africa are the lack of transparency and stability in the region. One large trader stressed there is not enough steady demand on a constant basis in Africa, and the market is too small and volatile to take risks in.

Looking ahead, a lot of interest is being focused on Nigeria, Africa’s most populous country, and gateway to the landlocked countries of Chad and Niger, which add close to an extra 30 million people to the total

While its local producer, Indorama Eleme Petrochemicals Ltd, has a PP nameplate capacity 120,000 tonnes/year and PE nameplate capacity of 360,000 tonnes/year, according to ICIS Plants and Projects database, some sources estimate its annual consumption to be over 1m tonnes.

However, Nigeria has suffered from serious financial problems throughout most of 2015, with a lack of US dollars in the country limiting the amount of credit buyers had access to and significantly impacting demand.

While trade has been taking place with buyers who were able to secure credit outside of the country, the financial situation in Nigeria will continue to affect the country’s attractiveness to producers into 2016.

Despite its problems, Nigeria is still attracting a lot of attention from suppliers, with many producers who attended the November GPCA event in Dubai singling the country out as their main target market in Africa going forward.

PE is used in water pouches and PP for rice and cement bags, amongst other goods.

Nigeria’s limited domestic production capacity is scheduled to increase in the coming years with the completion of the Dangote Group’s world-scale cracker at the Lekki refinery near Lagos. Originally scheduled for completion end-2018, local news reports the company is looking to bring the completion date forward twelve months to December 2017. Once completed the facility with have a PP capacity of 1.7m tonnes while its two PE units (high density and linear low density) will each have a capacity of 550,000 tonnes.

A large proportion of this material is thought to be earmarked for the company’s own use in cement bags and other industrial packaging, but there is room for exports out of Nigeria to countries such as Kenya, which require bags for industrial and agricultural use. When the new capacity comes online, it will certainly be a force felt in many parts of the region, sources said.

Similarly, the Egyptian market still faces financial woes due to a lack of US dollars available from banks and from the country’s black market. The Central Bank of Egypt capped US dollar deposits at $50,000 to try and stem the flow of forex leaving the country, and buyers faced further difficulties in getting any cargoes they could purchase into the country due to prolonged checks at Egyptian ports.

Despite the appointment of a new governor, sources in the PP and PE market do not expect to see much improvement in the country’s economy any time soon.

Suppliers to Egypt are now also battling against an apparent flow of illegal material entering the country via truck. Several market sources have spoken of these cargoes as a major concern for suppliers, with one Middle Eastern producer estimating they could account for up to 40% of market demand. The material is thought to come from Saudi Arabia, where it is being re-exported by buyers via distributors into Turkey.

Additionally, exporters to Egypt need to compete against the domestic producers in the country, with LDPE prices already facing downward pressure in January as a local PE producer lowered its prices to $1,100/tonne CFR Egypt equivalent. Producers supplying to Egypt have no choice but to offer lower or lose bids.

As with the Turkish PP and PE markets, there may be an increasing amount of US material appearing in Africa during 2016. Due to increasing US ethane and ethylene capacity, an estimated 9.2m tonnes of PE capacity will be online in the US by the end of 2018, with around 40% destined for export markets.

Traders and buyers serving Nigeria and East Africa are already seeing offers for US material appearing in their markets, particularly in East Africa, the traders bring material across from the US do not really see markets such as Kenya and Ethiopia as viable options at present.

Despite the seemingly numerous obstacles presented by the African market, from unstable currencies and a lack of forex, to infrastructure logistics problems and security issues in certain regions, players still appear very keen to get a piece of the action of this new, volatile and largely untapped market.

For those willing to take the risk and play the long game, Africa could potentially deliver some of the demand and returns that some now say the Asian market is lacking.