Lack of foreign exchange in Egypt impacting PE demand

21 September 2016 14:41 Source:ICIS News

Focus article by Matt Tudball

Egypt marketsLONDON (ICIS)--Polyethylene (PE) producers exporting to the Egyptian market are feeling the impact of ongoing currency problems in the country as a lack of foreign exchange along with increased domestic production is impacting demand, sources said on Wednesday.

Falling crude prices have severely limited the amount of forex entering the country over the last 12 months, and buyers are struggling to get hold of hard currency with which to pay for imported material.

“It is becoming untenable for [buyers] to get the quantities they want [from non-Egyptian producers] because they don’t have the dollars. That’s the main issues so they revert to getting the local materials in Egyptian pounds,” a Middle Eastern PE producer said.

The Egyptian Ethylene and Derivatives Co (ETHYDCO) started PE production from its two 200,000 tonne/per year PE plants in Alexandria towards the end of July, and is already supplying both local business as well as commencing exports to other regions at the end of August. The plants are producing a mix of linear low density polyethylene (LLDPE) and high density polyethylene (HDPE) film and pipe grade material.

“The pressure is less from Ethydco, it’s more on the forex just not available for [buyers]. They do buy, but in smaller quantities,” the Middle Eastern producer added.

Egypt imported over 200,000 tonnes of HDPE in 2015, according to data from ICIS Consulting.

Ethydco may be more interested in exporting material to other markets such as Europe and Turkey as both markets have zero import duty for Egyptian material in order to increase the flow of forex into the country, sources said.

However, while Egypt is the second largest exporter of polypropylene (PP) to Turkey, it faces stiff competition from existing HDPE imports to Turkey from Saudi Arabia, South Korea, and increasingly, Uzbekistan.

There is an expectation that the Ministry of Finance may devalue the Egyptian pound from the official rate, currently around 8.87 to the US dollar, to close to the black market rate of around 12 to the dollar as part of a deal to secure a $12bn loan from the International Monetary Fund.

“The current situation is really vague [and]… rumours control the currency exchange market…where the black market controls more than 75% of the USD circulated in the market,” a source in Egypt said.

According to news website ahramonline, devaluation in the lira could boost overall exports out of Egypt by 10%, Trade and Industry Minister Tarek Kabil was reported as saying at the second day of the Euromoney Egypt Conference on Tuesday.

With Tarek telling the conference he hopes there will be a free floating exchange rate in Egypt by September 2017, it will be interesting to see which markets Egyptian polymer exporters target, and if an increase in forex within the country leads to betted demand for producers from the Middle East.

By Matt Tudball