"South Africa Petrochemicals Report Q2 2010" available at Fast Market Research

March 1, 2010 - PRLog -- The South African petrochemicals industry is facing strong economic headwinds that are affecting sales and investment, with BMI's latest South Africa Petrochemicals Report suggesting that the country will see no increase in capacity over the next five years. In 2009, South Africa had petrochemicals capacities including 650,000 tonnes per annum (tpa) ethylene, 330,000tpa propylene, 560,000tpa polyethylene (PE), 60,000tpa polyethylene terephthalate (PET), 200,000tpa vinyl chloride/polyvinyl chloride (VCM/PVC), 680,000tpa polypropylene (PP) and 145,000tpa methanol. There are no plans for significant expansion or new plants over the next five years, according to BMI surveys. South African petrochemicals companies have not escaped the volatility of financial markets and the lack of liquidity in debt markets, which has seen a delay in capital expenditure programmes. In the year to June, Sasol reported a 39% drop in full year earnings from ZAR13.6bn to ZAR22.4bn on the back of fall in demand for its products. In response, the group decided to revise its capital expenditure programme for the next two years to about ZAR15bn per annum instead of the initially proposed ZAR70bn. This will ramp up to ZAR30bn in 2011. Just over 60% of capex will be spend on Southern Africa. The view that emerging markets remain risky has impacted negatively on the cost of capital, a situation made worse for Sasol by the drastic fall in the oil price and foreign exchange volatility. Ultimately, the situation will undermine any hopes of expanding the country's petrochemicals industry. On the upside, the PVC segment has been lifted by strong growth in construction with BMI forecasting construction growth rate of 12.8% in 2009 and 8.9% in 2010, making South Africa's construction industry as one of the best performers worldwide and stimulating demand for construction products using PVC. The main driver behind this activity is the country's preparations for the 2010 Football World Cup, which is compelling the construction of stadia and hotels as well as investment into the country's transport network with airports and rail as the focus. As we expect construction activity to die down following its hosting of the World Cup in 2010, we believe that construction industry growth will even out at around 5% per year until the end of our forecast period, which has now been extended to 2014. Growth in construction activity is more than offset by declining domestic industries that use other forms of polymer. The automotive industry, a major consumer of PP, is facing a somewhat bleak scenario due to the downturn in the global car market. All elements of the sector be it retail, auto parts manufacture or vehicle production, have been left reeling in the wake of the most severe and unprecedented drop in auto demand within recent history. While it seems that markets are once again starting to show levels of stability, analysts believe recovery will not begin to occur in earnest until H210.

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