Feb 10 2010
The economic turmoil of 2009 had a profound impact on the global chemicals industry. Demand for chemicals fell off sharply as end-users came to terms with low consumer confidence and declining purchasing power.
However, Frost & Sullivan notes that South Africa's chemicals markets remained fairly robust last year, thanks mainly to significant investments in infrastructure leading up to the 2010 FIFA World Cup. So far, a total of R11.92 billion has been spent towards stadium construction alone, and suppliers of construction chemicals have benefited from this spending.
"Government spending leading up to the World Cup has buffered the local economy from the demand concerns facing the global market," notes Frost & Sullivan chemicals programme manager Mani James. "The construction sector performed well through the recession and was growing at just over 10 percent last year. However, demand from other end-user groups, including the agriculture, mining and consumer sectors, is still under pressure."
James notes that the last few months leading up to the World Cup will see the final drive in infrastructure preparations. As this activity subsides in the second half of 2010, the economy is expected to slow and this will be the major challenge facing local industries. However, transportation, water works and electricity infrastructural projects continuing over the next two to three years will provide opportunities.
"The local automotive industry is also expected to return to a growth cycle for the first time in three years, albeit at a slow rate," James adds. "This will present opportunities for automotive suppliers including platinum producers, plastics manufacturers and all associated consumable materials suppliers."
Palladium has also become pegged as a valuable investment opportunity as an affordable substitute for platinum in automobile production. This might present opportunities for chemicals companies to target the expected growth amongst palladium miners.
"Our advice would be for chemicals manufacturers to target their production strategies towards the construction industries and palladium mining," James says. "They should also prepare for the risks of a strong inflationary environment, and high labour union costs."
James also sees a need for the local industry to become more globally competitive in order to boost export profiles and the associated production. However, the strength of the rand could make this difficult.
Source: http://www.frost.com/prod/servlet/frost-home.pag