Surge in plastics production defies environmental backlash

Surge in plastics production defies environmental backlash (FT)

• According to the American Chemistry Council, the shale rush in North America has set off an unprecedented wave of expenditure of at least US$200bn pledged to companies such as ExxonMobil, Dow, BP, and Shell to build new chemical production facilities.
• The expansion comes at a time when the era of EV’s threatens to collapse the demand for petrol and petrochemicals – plastics in particular – are seen as a way to fill the gap.
• However, changes in public opinion have been fuelling a backlash against plastic items, with authorities introducing bans on disposable items and formulating action plans to support the uptake of alternative/recycled materials, while trade tensions and a weak global economy have put additional pressure on petrochemical producers.
• In the US, producers’ margins for high-density PE have almost halved since peaking in 2017, while European facilities have seen margins fall by more than three-quarters by the end of 2019; and were negative in Asia.

Analysis and Comments

• This is a longer article that is well worth the read as it highlights both sides of the on-going debate on the future demand for petrochemicals.
• On one hand you have people calling plastics “the most egregious example of a gap between what the industry is expecting and what society demand”, while others think of the current situation as being “(…) much more a PR battle for the chemicals companies than (…) an actual demand threat”
• In the analyst view, the increasing backlash from the public and the US/China trade war alongside the introductions of widespread bans on single-use items (China being the latest to announce its ban) have created material headwinds that are likely to grow stronger over time and are contributing to pressure on producers’ margins. This situation looks unlikely to clear up any time soon.
• It seems like ultimately the core of the argument is around whether more durable uses for plastics (e.g. cars/EVs, household goods, and medical devices) can make up for the potential drop in demand on the packaging side.
• As a reminder, packaging makes up c. 40% of resin consumption in Europe and according to Data, 42% of all plastics entering the use phase globally (2015).

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