PAARL-based industrial conglomerate KAP International, can thank AECI’s decision to close its Sans Fibres for a timely boost to its revamped PET project.

KAP has invested over R100 million in building capacity in Hosaf’s PET expansion project, which was completed this year. With international and local economies still under strain, such a hefty investment could – with the benefit of hindsight – look somewhat imprudent.

Of course, there are longer term considerations. The expansion was part of Hosaf’s strategy to increase PET production while reducing the company’s traditional business in fibre sales.

But there seems to be reason to be optimistic about the PET project. In KAP’s year to end June results, directors indicated that the closure of the competing Bellville-based Sans plant earlier this year meant that Hosaf is now the only local producer.

KAP directors say the PET expansion was successfully completed in April 2009. “The plant is currently performing extremely well and producing an excellent quality product.”

They reckon Hosaf will generate additional operating margin from the extra PET volume produced.

KAP’s enthusiasm for its PET business stands in stark contrast to the utterances from Sans Fibres near the end of 2008.

While Sans Fibres’ PET business was a major supplier to the local market (PET being used mainly for soft drink bottling), official statements from the company suggest the long term sustainability of the business was questionable “in terms of its ability to reward the capital invested in its assets.”

Sans Fibres said further that it was expected that the PET business would continue to be adversely affected by local and international oversupply - particularly as a result of new South African capacity.

Presumably the additional SA PET capacity being referred to by Sans Fibres related to KAP’s expansion plan.

Reading such statements might make a sceptical soul wonder whether KAP has not over-extended itself in the PET arena – especially since Sans Fibres was not even able to find a buyer for its PET business.

Or does one conclude that an aggressive KAP may have snuffed out a major competitor by its determination to play on the front foot?

KAP directors concede, though, that margins remained under pressure during the current economic climate – especially on the international front.

But the directors maintain Hosaf is well placed to take advantage once markets improve. The next 12 months will certainly be telling for Hosaf.