African polymer producers are keen to return to early-2008 margin levels in 2010, and most are resolute that price rise is necessary to recoup losses. They continue to face several major hurdles in 2010 as they try to recover “unsustainable” margins in an uncertain market as per ICIS. Margins were deemed to be unsustainable as global feedstock costs and crude prices surged over 2009, one of the most volatile years on record, though there had been some recovery in volumes in the second half as production rates were cut in a bid to quell oversupply.
Since demand for olefins derivatives has not been strong, polymer producers have been unable to achieve all price targets. New capacities coming on stream in the Middle East and China amid weak demand from China is also an obstacle. Additionally, reduced demand ahead of the Chinese New Year celebrations in February could result in additional imports from Asia and the Middle East into the Africa market. If demand remains low until February, any gains by African producers made in the second half of last year, and possibly January, could be wiped out as imports that were earmarked for China might start to come into our region and destabilise prices.
However, despite the generally negative sentiment most producers expected some upturn in volumes and price in January, mainly because inventories were so empty and buyers would have to come back into the market to restock. Also, not all market segments or regions were faring badly. Construction was clearly weak and was not expected to recover in the short-term across the wider African market, but a faster recovery was expected in developing nations, such as western and central Africa. Food packaging was still strong across the wider market. There was also some optimism that volumes and prices could recover some ground on the back of the upcoming FIFA football 2010 World Cup, due to be held in South Africa. Demand for consumer goods and packaging and films, which represents 50% of the domestic plastics market, would be significant. The FTA between the ASEAN 6 could be positive for the African market as resin from new plastics capacities scheduled in the region would stay within the area.