Poor performance in end user industries, like manufacturing and mining, and higher costs of importing inputs due to the weaker Rand, have played a significant role in restraining growth within the chemicals and materials industry over the past year.
Limited demand from export markets will continue to put pressure on manufacturing in the short term and as a result, limit sales for the chemicals suppliers into the industry. Both the manufacturingand mining sectors have struggled with lower global demand, lower productivity, labour issues and higher costs of raw materials and other inputs. Higher input costs and raw materials expenses have also adversely affected chemicals companies. In 2014, however, more recovery is expected from global markets, which should mitigate some of the challenges facing these sectors, and the weaker rand will also support demand recovery.
Despite the low forecast of 2% in 2013 and 2.9% for 2014 predicted by the IMF for South Africa, the chemicals sector is still expected to grow at a higher rate of approximately 4% say analysts at Frost & Sullivan. Medium and large chemicals companies are able to weather the fluctuations in end-user demand as they are typically diversified, servicing multiple end user industries including agriculture, consumer and construction. The agriculture and consumer markets have also faced some challenges but are still contributing to driving growth for chemicals companies. In the long term demand from the mining sector is also expected to improve. The South African chemicals market is relatively mature compared with the rest of sub-Saharan Africa (SSA). Local and international chemicals companies with a presence in South Africa have been increasingly widening their focus to the rest of SSA for growth opportunities. Nigeria and Ghana in West Africa and Kenya in East Africa have also been key targets for expansion by chemicals companies in addition to neighbouring southern African markets.
Faster economic growth, large scale agriculture, large investment into construction and infrastructure, as well as mining, and oil and gas activities are key drivers for demand from key SSA markets.By focusing on key markets across the continent, chemicals companies can take advantage of the higher growth in 2014 concludes Frost & Sullivan.