OUTLOOK '19: Africa's PE, PP markets brace for transition year

Author: Ben Lake


LONDON (ICIS)--The start of a new year invariably leads to numerous established polymers companies to look to Africa as a major new growth market.

The difficulties of trading in the continent often lead to many of these embryonic plans being scaled back, or forgotten altogether, until the next year.

Africa is often subject to similar cycles every year, despite its dynamic trading nature.

2019 looks set to be different, however, for polyethylene (PE) as traditional new trade flows develop or are adapted by wider political events.

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In 2018, US PE volumes established themselves in the African market, leading to numerous outcomes and various possibilities for the future.

Prices have been significantly subdued due to the increased competition and the aggressive nature of US offers, and the question for 2019 is whether they remain as aggressive.

This, in turn, may be linked US foreign policy and what path the country decides to follow in its trade war with China.

As PE volumes need to be directed to other markets away from China, this would leave many US sellers looking for buyers, potentially forcing them into desperate price cuts to move their material.

This would be especially true in Africa as delivery times are longer than those for Middle East-origin material.

If the US-China trade war cools down, then volumes coming from the US may be directed to China.

In any case, US suppliers have been working hard to establish new trade routes in Africa, even since before the opening of the recent trade spat with China.

Offers from the US to Africa are unlikely to dry up, however, as there is obviously enough material available.

US volumes will be a key factor in 2019 after its prices significantly undercut offers from other regions in 2018, although it is unclear whether this strategy will continue or if US sellers will opt to increase their prices once their position in the market is established.

Long delivery times may mean that US-origin material may have to remain discounted to materials of Middle East-origin.

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The direction of US material will also affect how Middle Eastern players operate, because if US material cannot be sold in China then Middle Eastern players will look to leverage this to their advantage, possibly reducing allocation to Africa.

Another contributing factor to this are freight rates, which are much cheaper to China than Africa.

If tensions between the US and China cool down, then Middle Eastern volumes may have to compete on price with US product.

Numerous scenarios could develop based on known quantities, without even factoring in fluctuating oil prices or the slowing global economy.

PP's story in Africa in 2019 will be more straightforward as it is likely to remain on the tight side all year.

A lack of new production meant in 2018 that there was little surplus material, a situation likely to continue into 2019.

Supply issues could worsen in the coming year if demand grows, a situation avoided so far due to weaker global economic conditions, which helped counter supply constraints in the latter half of 2018.

Africa, as always, will remain a complicated market to operate in, with its own specific eccentricities.

Those difficulties, however, could become tougher in 2019, even for those who have grown accustomed to Africa's polymers markets' eccentricities.

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Focus article by Ben Lake