INSIGHT: Africa PE, PP market outlook remains uncertain

07 April 2014 17:21 Source:ICIS News

By Jo Pitches

LONDON (ICIS)--Uncertainty has started to cloud the outlook of the African polyethylene (PE) and polypropylene (PP) markets.

Lacklustre demand in other major polymer markets during recent weeks had led to greater availability in the Middle East and Asia.

With Africa a net importer and most of its supply coming from these regions, African distributors and buyers hoped that an improved supply might soften domestic prices.

However, with the Chinese markets now rebounding, the market in Africa is beginning to witness supply shortages, which could support prices that are already deemed too high.

During the last few weeks, the African markets carefully monitored a slowdown in China. Polymer business in the country was expected to pick up following the Lunar New Year holiday; however, this failed to happen.

Other key polymer markets, Europe and Turkey, had also not performed well over the first quarter. European PE demand has been flat in January and February, although there was some improvement witnessed in March.

Fewer imports have arrived into Europe so far this year, partly because of an increase in import duty from 3% to 6.5% for Gulf Cooperation Council (GCC) countries that came into effect on 1 January 2014.

In Turkey, the first quarter of 2014 saw a dramatic weakening of the lira against the US dollar, stemming from economic and political issues within the country. As a result, Turkish buying of PE and PP was limited to a hand-to-mouth basis.

Lacklustre demand in these major polymer markets led a number of African distributors to speculate if Middle East and Asian producers, unable to sell as much to their usual markets, would have surplus volumes available for Africa.

Some African market participants noted an increase in competition between international producers trying to sell to Africa.

On 4 March, a Middle East producer said: “The [South] Korean guys [producers] are concerned [about the slowdown in China]. Africa could become a fighting ground between Middle East and Korean suppliers.”

Some African distributors were also offered volumes by international suppliers they would not normally do business with.

“We got an email from a Saudi trader [offering volumes],” a South African distributor said on 26 March. “And another [supplier] asked if we're interested [in purchasing]. I know [global] demand is very lacklustre. We never hear from China and Europe [suppliers] when things are going well [in those regions].”

On 24 March, another distributor said: “The Middle East is not short [of volumes]. Everyone [producers] has extra. Korea is not selling enough into Turkey. Koreans have been looking on [trying to sell to] Turkey, Europe and Latin America, [so they’re now looking to Africa].”

On 1 April, a South Korean PE producer confirmed that its business with Africa - particularly West Africa - has indeed started to pick up recently.

However, this potential surplus of volumes stemming from poor global demand during the last few weeks has now been counteracted by recent and ongoing shutdowns in the Middle East and Asia.

ExxonMobil reduced its supply of linear low density PE (LLDPE) and PP from its facilities in Jurong Island, Singapore, because of an on-site shortage of feedstock propylene and ethylene, industry sources said on 3 April.

The unexpected shutdown of its 1m tonne/year cracker at the same site created a shortfall in its ethylene and propylene feedstock supply, according to sources. ExxonMobil declined to comment.

In addition, Sinopec Shanghai Petrochemical shut its 250,000 tonne/year high density PE (HDPE) plant in Shanghai on 26 March due to a shortage of feedstock ethylene and plans to restart it on 23 April, a source close to the company said.

Jilin Petrochemical also plans to shut its 300,000 tonne/year HDPE plant in Jilin province in mid-April for about 15 days of regular maintenance, a company source said.

Meanwhile, Qatar’s Qatofin plans to shut its 450,000 tonne/year linear LDPE (LLDPE) plant in Mesaieed in mid-April for turnaround, according to a source close to the company.

Other Middle East producers are also understood to be experiencing issues, although it has not been possible to confirm all of these.

Now, the majority of African market participants report of supply shortages of some grades, particularly HDPE, LDPE and block copolymer.

On 1 April, a distributor said: “There are some Mideast planned plant turnarounds as well as some unplanned ones; so that means they are not faced with surplus inventory so they will be able to manage the sales smoothly.

"The tightest products are HDPE and PP copo [copolymer]. The long LDPE positions in March have now vanished, so they [LDPE grades] are also balanced to tight.”

Furthermore, the Chinese polymer markets have recently started to recover.

China’s PE import prices rebounded last week and continued to strengthen this week. The prices of film grades LLDPE and HDPE were supported by reduced supply from the Middle East and Singapore in April, and the imminent maintenance shutdown of a number of local plants.

Some market players said the sharp fall in LDPE film grade prices in March is driving the current upward price correction in this segment.

Falling inventory levels of local producers and improved downstream demand is deemed the reason why Chinese PP prices have rebounded since mid-March.

In addition, Chinese market sentiment has been boosted by the scheduled shutdowns of several local plants, including Dalian Petrochemical, Zhongyuan Petrochemical and Shanghai Secco Petrochemical.

A distributor of PE and PP to Africa, Asian and other regions said: “There’s a huge surge in China [demand] today. We have seen China really pick up cargoes this morning. [The upturn of Chinese prices] will automatically make a big difference in world [PE and PP] prices.”

The majority of Middle East producers have rolled African March prices into April, despite initial resistance from customers who feel prices are already too high.

Buying across Africa has been limited to a hand-to-mouth basis in recent weeks, with distributors and buyers deeming prices excessive and unjustified.

Yet it is now this prolonged high price/hand-to-mouth buying situation in Africa - which has led to low stocks throughout the chain - that means African buyers requiring volumes may have little option but to pay the prices suppliers seek.

A distributor said: “In view of the low inventory throughout the chain, I believe customers will continue to make their normal purchases and the suppliers will not need to drop prices to generate business.”

African market participants are uncertain what the coming weeks will bring. However, much is likely to depend on how long the rebound of the Chinese PE and PP markets persists.

There are indications that Chinese demand for chemicals could soon improve.

ICIS reported on 3 April, according to industry sources, that China’s decision to launch a new economic stimulus package will boost chemicals demand as a result of new infrastructure investments in railways and affordable housing for low-income earners.

However, the clampdown on the availability of credit for speculation in chemicals and other sectors looks set to continue, they added.

North Africa PE prices - 07 04 2014

Additional reporting by: Matt Tudball, Linda Naylor, Muhamad Fadhil, Bee Lin Chow and Doreen Zhao

By Jo Pitches