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South Africa Petrochemicals Report Q1 2012
Business Monitor International, Dec 2011, Pages: 50
The South African petrochemicals industry is facing economic headwinds both at home and on export markets, according to BMI’s latest South Africa Petrochemicals Report.
Production at Sasol Polymers’ olefins and polymer plants in Secunda and Sasolburg was disrupted by a three week annual scheduled maintenance in October. However, the shut-down did not cause any tightening of the PE market with Sasol claiming that exports were limited over 2011 and supply had been channelled mainly to the local market. The company had also built up stocks to cope with expected increased seasonal demand from PE consuming industries in Q411.
However, the South African economic recovery is losing momentum and moreover, it is uneven with the supply side in the doldrums while the demand side continues to post robust growth. The manufacturing sector has been notably lacklustre, contracting 7% q-o-q in Q211 due to weakening global demand and the effects of the Japanese earthquake. We expect this sub-par performance to continue given shaky business confidence and the potential for industrial action. In terms of the domestic market, ailing consumer confidence given a bearish outlook for South African equities and a weak housing market will conspire to drive down demand for petrochemicals products. Compounding our concerns over the domestic recovery, BMI's outlook on both the US and eurozone has deteriorated over recent weeks, boding ill for demand for South African exports as well as various investment inflows from abroad.
The main issue facing the performance of the South African petrochemicals industry over 2011 is the value of the rand. We have concerns over the ongoing strength of the rand, which threatens a plethora of South African exporters, particularly petrochemicals and key petrochemicals consuming industries such as the automotive sector. We maintain our view for the South African rand to appreciate over the medium term, but we have moderated our targets. At the same time, domestic plastic converters are struggling with fluctuating polymer prices and low-cost imports from China, which have flourished since the South African government signed trade agreements with the country.
Southern Africa’s distance from high consumption markets restrains plastic exports. Nevertheless, over the short term, South African petrochemicals production will be more reliant on external demand, particularly from Africa, and price rises for growth in both volume and margins. This will be somewhat undermined by a surge in capacities in the Middle East and Asia coupled with high oil prices, which are fuelling growth in naphtha feedstock costs. The Sub-Saharan Africa (SSA) region is poised for growth through 2012, which should help lift South Africa’s external market environment. However, there are risks in the form of rising inflation and interest rate hikes that could undermine the regional private consumption growth that drives exports of South African petrochemical and plastic products to the SSA region.
In BMI’s Middle East and Africa Petrochemicals Business Environment matrix, South Africa comes seventh with 52.4 points, unchanged since the previous quarter. It lies 3.1 points behind Israel and 5.3 points ahead of Turkey. The South African petrochemical industry is the largest in Africa, although relatively small by international standards.
Business Monitor International's South Africa Petrochemicals Report provides industry professionals and strategists, corporate analysts, petrochemical associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Africa's petrochemicals industry.
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