Global Polyolefins Market Snapshot

Sep 23, 2019

There was a significant slowdown in polyolefins consumption in 2018, with some major regions experiencing negative growth. The automotive sector had a particularly severe reversal in 2018, and this trend is worsening in some regions in 2019, while others have started to recover. Global economic growth remained relatively strong in 2018, and was little changed from 2017. The outlook is mixed, with increasing protectionism, and particularly the U.S./China trade war causing some economic damage, although the resolution to these conflicts also provides potential upside. Despite the trade issues with the U.S. however, Chinese demand growth was unusually strong in 2018, contributing around half of total global polyolefins consumption growth. This was in part due to the halt in imports of waste plastics from other countries however, and may not be repeatable in 2019.

The industry faces considerable headwinds, bearing the brunt of increasingly negative sentiment regarding plastics pollution in the environment. This has provided a politically expedient opportunity to impose additional taxes on plastic packaging in some regions, and others are expected to follow. Recycling is generally assumed to be the solution to plastics pollution issues, despite there being little evidence to suggest that this can significantly reduce the amount of plastic waste entering the oceans. There was little progress in the recycling of polyolefins even at US$100 oil, and major growth will require legislation and subsidy (e.g., through taxes on the use of virgin polymer). Numerous technologies for cracking plastics back to fuels are being developed, and could provide a more workable means of giving value to post-consumer plastics which are currently entering the marine environment.

While India announced apparently drastic regulations on plastics use in packaging, the polyolefin markets there have continued to grow.  With no practical or economical alternatives to plastics use in most applications, growth is expected to continue along with economic activity, and therefore will continue to be focused in the rapidly growing and populous economies in Africa and Asia. Urbanization, increasing population, and income in developing regions are however the major long term consumption drivers for polyolefins, all driving increased purchasing of the very wide range of products that contain polyolefins. South America also retains significant potential for growth, although the economic situation in Argentina and Venezuela remains dire, and Brazil’s recovery has remained very slow.

Growth continues in developed regions despite polyolefins consumption levels passing 60 kg per capita in countries, such as the United States. The drop in consumption in Western Europe, however, showed vulnerability to industrial stagnation and to the legislative and societal pressures on the ubiquity of plastic packaging. Brand owners are increasingly active in combatting the negative associations regarding their use of plastic packaging, and are in some cases prepared to pay a significant premium over virgin polymer prices for recycled materials. It is unclear how far these sentiments spread beyond Europe, and there is particularly low sensitivity to environmental issues and the proposed benefits of plastics recycling in the developing regions where most of the polyolefins consumption growth is forecast.

Global trade in polyolefins will continue to grow, driven in the short term by a major polyethylene build around ethane-based steam crackers in the United States. A massive polyolefin capacity build is underway in Asia however, based around new liquids crackers in China, India, South Korea, Indonesia and Malaysia. These developments are focused on local/regional demand, and will compete with imports from the United States and the Middle East. Capacity growth in the Middle East has slowed, but will be rejuvenated towards 2030 by major liquids-based cracker projects. The projected decline in global gasoline demand from 2030 has made petrochemicals the key area for downstream growth. This has triggered a wave of investment around the world by Middle East national oil companies, which will be a defining factor in the olefins and polyolefins markets over the coming years.

The renewed U.S. sanctions on Iran have significantly reduced the forecast capacity growth, with several developments in the mid-term no longer considered as firm in this analysis. Some significant developments in gas supply were achieved over 2018 however, potentially allowing higher polyolefins output at existing plants if producers can circumvent the restrictions they currently face on trade. The volume of export-based polyolefin capacity development in regions such as the United States, the Middle East, and Eastern Europe is substantially below the quantity being built in the key demand growth regions such as Asia. The new export capacity will make a make a major impact, requiring aggressive pricing to penetrate markets which are themselves striving to displace imports by building their own capacity. The increasingly protectionist trade environment suggests an increase in anti-dumping investigations. Australia has already announced an anti-dumping investigation regarding HDPE sales from the United States and some other countries. The new capacity in other polyolefins-importing countries will mean more demands for protection from the producers there, and several such anti-dumping investigations are expected over the coming years. 

Some of the producers currently expanding export-based capacity in the United States also have exporting assets in other countries, and can use these plants to sell into China while exporting U.S. product to other markets. This kind of flexibility may also be required if anti-dumping duties on U.S. exports become more widespread. So far, the main effect of the U.S./China trade dispute has been for increased U.S. focus in other markets, while Middle Eastern sales have taken more share in China.

The potential for consumption development in Africa is enormous if the population and economic growth occurs as expected. The number of middle class households is expected to increase by a factor of two or three by 2030, driving demand growth for packaging and all kinds of household goods which drive polyolefin demand. Very low labour costs in much of Africa also make plastics conversion activities potentially competitive against Asia. However, supply in Africa has been very slow to develop, and cracker projects proposed in Egypt and Algeria have not yet become firm despite several years of effort from project sponsors. A major oil refinery and FCC propylene development is underway in Nigeria, and one or more major steam cracker complexes are expected in the coming years.

Following postponement due to economic turmoil and trade sanctions, gas-rich countries in Eastern Europe such as Russia, Kazakhstan, Uzbekistan, and Turkmenistan are adding capacity and will rapidly transition the region from a net import to a net export position on polyolefins. Recent projects in Uzbekistan and Turkmenistan have been completed fairly quickly, while progress in Russia and particularly Kazakhstan has been slower.

According to the IMF, global real GDP growth slowed marginally to 3.6 percent in 2018 from 3.8 percent in 2017. Growth is forecast to decline to 3.3 percent globally in 2019 however. There are signs that both the United States and China would like to resolve their trade dispute, but there seems little chance of an immediate resolution. Tensions in the Middle East have increased, but again most parties seem unwilling to enter into a military conflict.

Economic performance in a downturn varies by sector. Food and beverage, home and personal care, and healthcare are largely non-discretionary areas of spending and are less affected by changes in economic growth. The automotive, construction and housing sectors, however, are greatly affected by the economy and consumer spending.  Globally, construction industry growth has remained somewhat pedestrian, but increased infrastructure spending has made demand for polyolefins pipe material very strong in recent years. The downturn in automotive production in late 2018 and early 2019 has particularly affected polypropylene demand in regions such as Western and Central Europe, although there are some reasons to expect a recovery in 2019 in other key markets such as China. Global polyolefins demand slowed to 4.4 percent in 2018, after unusually high growth of 5.0 percent in 2017.  Of the 7.2 million tons of polyolefins consumption growth globally in 2018, 4.5 million tons was in China. 

China has continued to drive global polyolefins consumption, and the slowdown in major consuming regions such as the European Union made Chinese growth even more significant in 2018. Polyolefins consumption growth in China has continued at high levels despite a steep drop in published GDP growth. New supply growth in the United States will encourage some additional plastics conversion activities, but the effect on US demand is not expected to be highly significant. There has been some small benefit in recent years from “re-shoring” of some basic plastics conversion activities, but the escalation of trade tariffs between the United States and China appears to be favouring other Asian countries more than it benefits US plastics converters.

Demand growth for polyolefins has shown a good historical relationship with GDP growth in general terms, although generally outperforming GDP growth, and with sectors such as packaging being less cyclical, while the construction and automotive sectors are more highly cyclical. The heavy media coverage and increasing public concern regarding plastic pollution will require an adequate response from producers if the growth relationship to GDP is to be maintained.  Packaging in particular has been identified as the largest contributor to marine pollution.  The problem has developed as a result of the growth in packaging use in outpacing the capacity of municipal waste collection, leading to large volumes of plastic waste being discharged into rivers, and thus to the sea.  A lack of cultural awareness regarding littering in many regions is another significant factor. 

Recycling and controls on single-use packaging are viewed as attractive solutions by some governments, although “circular-economy” type initiatives to re-use waste polymers for packaging are often highly problematic, uneconomical, and indeed questionable from an environmental perspective. The requirements of polymer performance for food packaging are extremely rigorous, and this kind of recycling therefore involves substantial volume losses and consumption of energy and chemicals in the cleaning process.

Disposable, low wall thickness shopping bags are often the most visible kind of plastic litter, and have been the first to be controlled via numerous plastic bag bans in many parts of the world. They are also easily replaced by  polypropylene spunbond or raffia reusable shopping bags that are now the norm in many parts of the world. While this provides some indication how some other sectors may evolve, many areas such as dairy and pre-cooked foods packaging have no viable alternative to single-trip plastics. The solution therefore must lie in improving waste collection and increasing public awareness and conscience regarding littering in developing countries. New technologies to convert plastic waste into diesel and other marketable hydrocarbons provide a good practical solution, and a means of giving a value to plastic waste that would encourage both private individuals and municipal agencies to collect rather than dumping waste plastics. There are over 30 competiting technologies of this kind currently under development. 

A return to using glass bottles in place of HDPE or PET is thought unlikely, as even highly environmentally conscious countries such as Germany have largely ceased their use, acknowledging that the energy consumed in collecting and washing these bottles, coupled with the much higher transportation weight and cost outweighs the perceived environmental benefit from not using a petroleum-based material.

Countries such as India have announced plans to totally cease the use of single-use plastic packaging, but is regarded as impossible and indeed undesirable from a public welfare perspective. Previous bans on certain types of packaging usage did not illicit the desired investment in waste mitigation by the companies which use and produce packaging, and this new initiative to ban all plastic packaging by 2022 is expected to instead force more significant investment in waste collection and recovery by the stakeholders in the packaging industry, of sufficient impact to maintain the political credibility of those pursuing this legislation. Extended producer responsibility is providing a framework for governments to fund waste collection services through taxes and other obligations.

While there will be a resulting increase in polymers available for recycling, energy recovery and fuels production will remain the main uses for post-consumer plastics. Other secondary uses will also continue to be developed for plastic waste, although these will largely displace other construction materials rather than re-entering the value chain as substitutes for virgin polymers.

Durability improvement of some plastics applications tends to shift demand from one polymer such as HDPE film to another such as polypropylene raffia, and does not cause a complete loss of polyolefin demand in that sector. Durable items such as shopping bags and drinking water bottles also tend to consume significantly more polymers than their disposable equivalents, but are not infinitely re-usable, and will be replaced e.g. annually. Other trends are also at play, such as the tendency to use significantly more packaging for retail food products sold through supermarket home delivery services. It should also be considered that a large element of packaging demand is for intermediate goods e.g., shrink hoods on pallets. These products are not visible to consumers and therefore are not subject to the current focus on plastic pollution in the environment.

Although the impact of initiatives to reduce plastics use and pollution may be much less than announced or intended, the industry needs to acknowledge the tide of public opinion, and increase the efficacy of efforts to communicate the positive benefits of plastics use such as reducing carbon emmissions from freight, and reducing food waste. It appears inevitable that a higher level of engagement in waste recovery and treatment will be required of packaging industry stakeholders, requiring significant investment from the larger companies. Several producers have already made moves in this direction, including purchasing and expanding recycling operations in developed regions, and funding collection and recycling initiatives in those developing regions which release plastics waste into the environment.

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Table of Contents - Market Analytics Polyolefins 2019.pdf

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Market Analytics: Polyolefins 2019