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PLASTIC MANUFACTURING: Export Opportunities Exist

 





Recent Gauteng Business News

Coface, the international credit insurer, says in its quarterly risk review that growth opportunities exist in the plastics manufacturing industry.

The report says that government, having identified the plastics industry as a potential growth area, should be beneficial to the industry. In addition, the industry’s oversupply of polypropylene and polyvinylchloride should prompt exports of these products, says George Marais, risk analyst, Coface.

But the industry is also facing challenges, says Coface. Technological upgrading is proving to be difficult because it requires high capital input. Due to the nature of plastics manufacturing, industries are not in close proximity to the markets they supply making them vulnerable to increased delivery costs. The industry is also facing a skills shortage, Coface says.

Plastics manufacturing contributes approximately 0,5% to South Africa’s GDP and 3,2% to the manufacturing sector. The sector has an estimated annual turnover of R35-billion.

Industry growth has been impressive, says Coface, with an overall average annual rate of 5,5% increase over the five year period to 2008 and cumulative sales of R175-billion for the same period.

The sector employs over 63 000 people representing 3,4% of employment in the entire manufacturing sector for South Africa. The export value of plastic products in 2010 was R2,4-billion compared to an import value of R7-billion, resulting in a trade deficit of R4,6-billion.
The recent lowering of import tariffs on polymers and other inputs will contribute towards more competitive input prices and Coface sees opportunities in:
 Automotive interior products.
 Packaging.
 Medical syringes, HIV and diagnostic test toolkits.
 Buildings – pipes, flooring, building sheet, sanitation and woven/netted polypropylene.
 Electrical and electronics cables, appliances and casing components; and green industries such as manufacture of wind turbine blades.


Coface says there are threats facing the industry. Import parity pricing of polymers and other key inputs are becoming more efficient and cheaper. This means that the price charged for a domestically produced product is set equal to the domestic price of an equivalent imported good.

New innovations are constantly changing the production process which could result in manufacturers not keeping up with changing trends. In addition, logistic costs, due to South Africa's geographic position, continue to increase. Due to insufficient research and development, the plastics market could lose its advantage.

Polymer production is one area of potential expansion, says Coface. South Africa exports significant tonnages of polymers according to Plastics SA. But the country still imports greater amounts of mainly polymer intermediaries, such as polystyrene, which is not manufactured locally.

Most plastic companies in South Africa are small, with over 800 of the approximately 2 000 companies involved in the plastics converting sector. But as a whole, Coface sees this industry as a lower-than-average credit risk.


 
 
 
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