What we are talking about here is how falling plastic demand can affect the country and the fight against the Covid-19 coronavirus.
Changes in Use of Plastic
As per LyondellBasell Industries, the demand for plastic will take a tumble this year, even though greater use is being made of plastic for face masks, food packaging and other items for single use that help in preventing the spread of the coronavirus.
This chemical group, listed in the US, has made a prediction that consumption of plastic will reduce by 15 per cent for the two varieties of plastic that are most common, as the pandemic has led to fewer people buying automobiles and household appliances.
This substantial drop is rare in a material that has always proliferated due to the rise of living standards in all parts of the world, but which has also always been linked to the environmental damage from products that are discarded and thrown away.
Even in recessionary periods, the demand for plastics has never declined, and this is shown by the data for global demand for polypropylene and polyethene that has been maintained for the past 25 years. It is true that demand did decline in 2008 when there was a global financial crisis. This fact was mentioned by Bob Patel, Chief Executive of LyondellBasell, while talking to the Financial Times. However, he also said that even this decline in 2008 was in the region of 3 to 4 per cent compared to the 15 per cent that is now talked about.
Supply of Plastic Exceeding Demand
Risks of an oversupply of plastics are highlighted by this downturn, and this follows the massive investments made in new petrochemical complexes in the past decade.
The long-term trend for global growth in plastic is 3-4%. The cheap raw materials available from shale extraction in the US, has led to companies like ExxonMobil, Royal Dutch Shell, and Dow to promise more than $200bn for huge facilities using these materials.
This in turn, as per data provider ICIS, has led to a surge in the manufacture of polyethene, with a production of 105m tonnes in 2019 for use in shopping bags, pipes, and packaging film. The production of polypropylene, a product, used in shampoo bottles, crisp packets, and car bumpers, is 75 mn tonnes.
Coffee chains have returned to the use of disposable cups because of hygiene, and the ban on single-use items like stirrers and straws which has been delayed due to the fear of the corona virus has led to the fear that the battle against plastic waste may lead to environmental campaigners suffering a setback.
The coronavirus has created a demand for polymers that are used in gloves, hospital gloves, and personal protective equipment.
But this has been overshadowed by the slumps for many producers in the aerospace, construction, and automotive sectors.
As per Mr Patel, there have been two black swan events that the chemical industry has experienced in the form of the oil price crash and the coronavirus pandemic. This has greatly reduced the charges the chemical suppliers can make for a number of substances made with the use of fossil fuels.
Even before this double whammy, benchmark values for various grades of plastics were already at multiyear lows.
Mr Patel further said that this can turn out to be a difficult year for earnings, similar to those in the years 2008-2009, but the worst is now over for companies like Marine & Industrial Plastics, and what needs to be looked at is the pace of recovery.
As per Mr Patel, this period when margins are being challenged can lead to a reduction in global supply.
An analyst at ICIS, Ciaran Helay, says that in the second quarter there could be significant negative effects on commodity polymer producers, with some of them registering losses.
He further said that the crisis could linger into the next year, 2021, and going back to high levels of profitability may take even longer.
As per Mr Patel, the hit to the platics industry could be less severe if it is possible to avoid another major viral outbreak. The summer season could see the reopening of trade, and this may lead to demand for plastic surging once again.