Threat of displaced Qatari volumes hangs over African PE market

LONDON (ICIS)–The African polyethylene (PE) market is being weighed down by high supply levels and poor demand, and the possibility of increased imports from Qatar is fraying sellers’ nerves.

Africa has been attractive to foreign exporters for most of this year, as prices stayed stable while other areas have seen prices fall. 

From March onwards, in particular, PE prices in Africa have maintained a healthy margin over other regions. Even after prices began to fall in May, the potential for healthy netbacks has maintained.

The possibility that Qatari PE volumes normally intended for sale to the Middle East being offered into Africa has added to local seller trepidation.

While there are no current Qatari offers into Africa, volumes from the country will have to be diverted elsewhere if the political standoff continues.

Buyers are currently enjoying a strong position, with price competition high and supply levels unlikely to be an issue in the near future.

Even prior to the developments in Qatar, Africa has been well supplied in PE from a variety of sources, as African buyers have a habit of sitting on large stocks to insulate themselves from any potential disruptions to supply.

In this case, it leaves buyers with little inclination to commit to large volumes, and most buy on a hand to mouth basis. This forces suppliers into price competition to achieve market share.

Some regions in Africa have also been offered discounted US material that has forced traditional sellers to cut their own prices. This material is being offered in an effort to establish logistical routes, according to a source.

High density polyethylene (HDPE) is under particular pressure, as high density blow moulding grade is abundant across Africa and many other regions around the world.

Regional issues have also dented demand in some African countries. A plastic bag ban in Kenya has limited demand, as well as poor sentiment in the lead up to a general election.

South Africa has entered recession following a decrease of 0.7% GDP in the first quarter of 2017, which followed a 0.3% contraction in the final quarter of 2016.

Morocco is currently experiencing waves of protest against perceived injustices from the government.

An overriding factor in the development of sentiment in Africa has been trends in Asia as prices in that region have tumbled throughout the year, and players in Africa have been happy to wait for African PE prices to follow suit.

A change in the trend in Asia may prompt buyers back to the market to beat price hikes.

Expectations in Asia are not of a reversal of the downwards trend, despite some stabilisation in the past few weeks.

A source expects that supply will increase again next month when sellers increase their allocations, having cut them for Ramadan.

“There will be a huge supply of product. Expect significant production,” said a source.

July could become a key month for African PE and, if supply continues to outstrip demand, 2017 could see supressed prices continue.

Some sellers have already voiced concern that 2017 has been a poor performance year.

Focus article by Ben Lake

Pictured above: Khalifa International Stadium in Doha, Qatar
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