The operating environment of South African petrochemicals will become increasingly hostile over the
medium-term due to a slackening in exports, according to BMI’s latest South Africa Petrochemicals
The South African economy is poised for a slowdown in 2012, with real GDP growth forecast to come in
at 2.7%, down from an estimated 3.1% in 2011. Although private consumption should hold up relatively
well, serious headwinds from the global economy will inevitably take their toll on growth and South
African exports, both petrochemicals and products utilising petrochemicals, will inevitably suffer. Given
the poor outlook for growth in the US and eurozone, as well as the potential for a hard landing in China,
South Africa is likely to suffer from the weak global growth environment and potentially high investor
risk aversion. We maintain our core view that economic growth in South Africa will be driven by the
consumer spending, while manufacturing continues to remain weak. This will continue beyond 2012,
although exports should pick up.
The main issue that faced the performance of the South African petrochemicals industry over 2011 was
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 now see some modest appreciation in 2012 from an average of
ZAR7.26/US$ in 2011 to ZAR8.00/US$, a level it should maintain over the following four years. While
this should improve competitiveness in 2012, over the medium-term it will be undermined by inflation.
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
Capacities are not expected to rise significantly or at a rate that will challenge competitors in the Middle
East and Asia. In 2011 South Africa had petrochemicals capacities including 650,000tpa ethylene,
330,000tpa propylene, 560,000tpa PE, 60,000tpa PET, 200,000tpa VCM/PVC, 680,000tpa PP and
145,000tpa methanol. Sasol’s construction of an ethylene purification unit at its Sasol Polymers plant is
set to come onstream by mid-2013. The company hopes it will raise production by around 48,000tpa by
2015 and will supply PE production facilities, thereby reducing the import dependency of South African
plastics converters. There are no further plans for significant expansion or new plants over the next five
years, according to BMI research.
In BMI’s Middle East and Africa Petrochemicals Business Environment matrix, South Africa comes
seventh with 54.5 points, up 2.1 points since the previous quarter due to an improvement in its country
risk score. It lies behind Israel and ahead of Turkey.
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