Market outlook: Africa polymers attract interest

Matt Tudball

02-Feb-2017

Alamy

Nigeria will continue to be a major polymers export destination. Some believe Africa has the potential to become a market player

The African polyethylene (PE) and polypropylene (PP) markets in regions across the continent are gaining increasing interest from major global players, and are being touted by some as the next major export destination after Asia. But they face financial, political and logistical challenges, which need to be overcome before the industry can grow.

Polymer producers are looking to Africa as one of the next major export destinations as China becomes increasingly self-sufficient. Bob Patel, CEO of LyondellBasell told delegates at the 50th annual European Petrochemicals Association (EPCA) meeting in Budapest, Hungary, in October 2016, that the future growth of petrochemicals will come from Africa and Asia, including India and China.

Both continents have a huge potential for growth even though plastics consumption in the developed countries is far higher, Patel said, adding that if plastics consumption was to rise by just one kilogram per capita in this region, seven to eight new world-scale PE plants will be needed.

Africa is a frontier market, and will be an interesting place to do business in the future, Patel said at the meeting. However, the political and security situation in Africa is keeping it from attaining its full business potential.

“That market has tremendous potential in the next 20 years,” Patel said.

In terms of prices, each region has its own political and/or economic issues that will impact demand during 2017, and price movements in China will also play a part in price direction during the year.

COMPETITION WITH ASIA

Higher price levels in the Chinese and Asia-Pacific markets have attracted material away from several markets such as Turkey and Africa, with producers taking advantage of better netback opportunities.

Low density polyethylene (LDPE), in particular, was drawn to China because of higher prices compared to other markets, and if these prices are maintained after the Lunar New Year holiday, which began on 28 January, some African cargoes will be diverted away from the continent.

Prices in Africa, however, have started to rise and some grades were in line with Chinese levels by mid-January. However, significantly cheaper freight rates from the Middle East to China will keep the arbitrage window open unless producers are able to push African prices higher in the coming months.

Several key markets in Africa – Nigeria, Egypt and South Africa – are currently experiencing varying degrees of financial and economic problems, which have affected demand in one way or another.

CURRENCY VOLATILITY

For both Egypt and Nigeria, a lack of foreign exchange was a major hindrance to trade in 2016, and there are few signs of improvement. In November 2016, the Egyptian government floated the pound, which caused a massive drop in the currency against the US dollar, and increased running costs for converters as well as raised import prices into the country.

“Currency is still a problem. After the devaluation, the dollar became very high, so costs have become very high, and this is a problem for the buyers,” an Egyptian PP producer said in January.

However, there is still demand in the Egyptian market, a PE producer in the country said, even though imports have decreased.

The Egyptian market will be focusing on exports of both polymers from local producers EPPC (Egyptian Propylene & Polypropylene Company), Oriental Petrochemicals and newcomer Ethydco, all of which will be exporting material to help facilitate the inflow of much needed foreign exchange into the Egyptian economy.

Nigeria is also facing the issue of currency shortage, which impacted the market throughout 2016, and is showing no real sign of improvement. The lack of hard currency has led to increasingly long delays in payments and a growing reluctance from traders and distributors to do business with buyers who do not have international bank accounts.

“Nigeria is not looking good at all,” an international distributor said.

“Right now there isn’t too much demand, and even if there is, I don’t know how to sell to that market. You can’t keep doing [business] on open credit, as even the customers now don’t want to do it as the rate of forex from banks is too high compared to letters of credit,” the distributor said.

NIGERIA A KEY MARKET

With close to 170m inhabitants, Nigeria is still a key market for polymers, with the majority of demand coming from the detergent and liquid packaging sectors. In addition, local manufacturing industries, such as cement, will help polymer demand for storage and transportation, although the Dangote refinery and petrochemical project in Lekki, Nigeria, is due to come online sometime in the next year or two, and may cover a large part of that demand.

With domestic production still limited, the country relies heavily on imports, and its geographic location makes it open to an increasing volume of US material as well as cargoes from the Middle East and India.

US cargoes could factor significantly in 2017 due to an increase in US PE capacity, and traders shipping US material to the region have already proved to be aggressive with prices, undercutting Middle Eastern prices by up to $40-50/tonne.

UP-AND-COMING ETHIOPIA

East Africa, and more specifically Kenya and Ethiopia, is likely to be on many producers’ radars in 2017 due to strong demand and the growth potential in both markets. Kenya leads the region in terms of market size, but Ethiopia is quickly attracting supplier attention with several existing and up-and-coming industries such as caps and closures, and cement.

The opening of the Chinese-built Addis Ababa–Djibouti Railway will improve the ease of getting imports into land-locked Ethiopia. However, poor logistics and transportation links in the region need to see significant improvement to ease the movement of goods.

Upcoming elections in Kenya may cause some disruption around summer, although some sources say this will be minimal as they believe the result is a foregone conclusion, and the market will soon return to business as usual.

POLITICS ROIL SOUTH AFRICA

Politics and finance will also have a large part to play in the outlook for South Africa in 2017. While the rand has strengthened against the dollar, it remains extremely volatile and at the mercy of political events in the country.

A South Africa-based polymer producer said the actions of President Zuma and the ruling African National Congress (ANC) in the run-up to elections at the end of the year will have a major impact on the country’s financial situation.

The rand fluctuated during 2016 alongside political turmoil, which saw Finance Minister Pravin Gordhan under threat of arrest from his political opponents. There is also the possibility of a credit downgrade by the international credit ratings agencies. However, compared to other currencies, it has fared reasonably well.

However, Gordhan may not have seen the last of his troubles – there is speculation in South Africa that he could still be removed.

“Should this happen, I have no doubt that we will see the rand fall sharply with immediate effect and will precipitate huge uncertainty within the economic and investment space. A ratings downgrade is quite clearly confirmed then in this scenario,” the producer said.

2017 will be an interesting time for the African polymers market, with change driven by events in other regions – the increasing self-sufficiency of China and growing production capacity in the US are just two examples.

Whether it is growth and investment opportunities in the African markets that attract producers (despite the considerable challenges that come with them), or changes in other markets that divert focus onto the region, the continent is certain to be of increasing interest to global suppliers in 2017.

READ MORE

Global News + ICIS Chemical Business (ICB)

See the full picture, with unlimited access to ICIS chemicals news across all markets and regions, plus ICB, the industry-leading magazine for the chemicals industry.

Contact us

Now, more than ever, dynamic insights are key to navigating complex, volatile commodity markets. Access to expert insights on the latest industry developments and tracking market changes are vital in making sustainable business decisions.

Want to learn about how we can work together to bring you actionable insight and support your business decisions?

Need Help?

Need Help?