Despite serving as the largest and most sophisticated chemicals industry in Africa, the South African chemicals industry only contributes roughly 1% to the global market.
The South African chemicals industry contributes 5% to the country’s gross domestic product (GDP), while the local petrochemicals sector is the largest sector contributor to the chemicals industry in South Africa, with a contribution of 55%. Through innovation and increased operation efficiency, the South African chemicals industry is expected to have moderate growth of between 3% and 4% over the next several years, making the chemicals industry more competitive and attractive.
Petrochemicals growth will be driven by the demand from end-users, such as the paints and coatings, automotive, mining and construction sectors, where large amounts of chemicals are still procured locally, as the local refinery capacities meet the bulk of local demand. The market for petrochemicals is expected to grow at a compound yearly growth rate of close to 2%, owing to limited investment in local refineries and old technology limiting efficiency. The greatest potential for growth in the chemicals industry lies in the plastics sector, with moderately high growth expected, amidst the slow GDP growth and market maturity.
Also, the demand for additives used in fuels is expected to increase as the local Clean Fuels II regulation, which aims to lower the sulphur content of fuels, is expected to come into effect in 2017. In addition, the biofuels-based legislation for fuels, to be implemented in 2015, will impact on this demand. This legislation requires all diesels produced to have a 5% blend of biodiesel, and ethanol to have a bioethanol blend of between 2% and 10%.
The local chemicals market is becoming increasingly competitive, owing to intensified regulations on emissions and waste, which puts chemicals manufacturers and end-users under pressure. The biggest challenges in the South African chemicals market are the large volumes of raw chemical materials that continue to be imported and are subject to exchange rate fluctuations. Delays at ports when importing chemicals, and strikes, add to the costs of chemicals, which are, in most cases, absorbed by the manufacturer to remain competitive, resulting in lower profit margins.