INDUSTRY INSIGHT

Covid-19 provides narrow window to promote the benefits of plastics

By Charles P. Venezia is Senior Vice President and Global Head of Petrochemicals of Argus (with contributions from Julia Kelly)

The Covid-19 pandemic has had a positive impact on certain segments of global polymer demand. In addition to polymer demand for sanitary, medical and health care applications, global polymer demand for packaging has also improved, albeit temporarily.

Fearing that reusable bags and cups are possible sources of contamination, purveyors and consumers quickly changed their habits — many grocery stores no longer allow shoppers to bring their own reusable bags (made from cotton fibre or polypropylene), reverting to packing purchases only in single-use high molecular weight (HMW) polyethylene bags.

In the US, many state and municipal authorities have relaxed or lifted bans on single-use plastic bags, coffee shops such as Starbucks no longer allow customers to bring their own cups and sell hot drinks only in a paper cup with a polystyrene lid (and optional polypropylene stirrer), while most restaurants are only offering a takeaway service. Because of these measures, single-use plastics packaging in the food service sector has soared.

These practices have also been adopted in the Middle East as governments imposed strict measures to stem the spread of the coronavirus. Restaurants in Saudi Arabia, the UAE, Kuwait, Bahrain and Oman closed and people stayed home owing to a lockdown for much of March, although convertors were running overtime to produce plastics for food packaging.

Supermarkets in the UAE also provided polyethylene gloves to customers to prevent contamination when handling fruit and vegetables, and restaurants in many parts of the region used more plastics than they normally would to pack hot food and drinks for hygiene purposes.

“Supermarkets in the UAE also provided polyethylene gloves to customers to prevent contamination when handling fruit and vegetables.”
“Lower energy prices have resulted in low-cost petrochemical feedstocks. If oil and feedstock prices remain low, polymers will grow well above GDP levels.”

But this renewed adoption of polymers may be short-lived. As lockdown measures ease, there will be renewed pressure from environmentalists and some government entities to limit or ban single-use polymer packaging. Until then, the industry has a narrow window of opportunity to promote the benefits of plastics as packaging materials — safety, low cost, convenience, and its lower carbon footprint than other packaging materials.

Safety/hygiene/medical: In a post-Covid-19 world, an important new group of consumers will emerge — consumers concerned about contamination or spoilage, who will look for more packaging (wrapping of fresh produce) rather than less. In this regard, polymers offer advantages over alternative materials ­— (hygiene, clarity, long shelf life, lightweight etc).

Using Saudi producers as an example, sales of polypropylene fibre resins increased significantly in February and March, owing to strong demand for medical supplies and face masks globally, especially in key export markets such as Turkey and China. The shift in production to fibre-grade PP — the raw material for surgical masks — inadvertently led to tight supply of the PP raffia grade in April. As a result, PP prices shot up in mid-April in China after weeks of decline, largely due to a surge in demand for personal protective equipment (PPE) for medical workers on the front line.

Low cost: The recent collapse of oil prices and refined products will have a positive impact on the petrochemical industry. Lower energy prices have resulted in low-cost petrochemical feedstocks. If oil and feedstock prices remain low, polymers will grow well above GDP levels, as they capture share from other materials.

Polypropylene (PP) growth rates have exhibited a strong, negative correlation to crude oil prices, so when crude oil prices are low, demand for polypropylene increases at rates well above those of global GDP. Conversely, when crude oil prices are high, it grows at lower rates, as it loses share to more competitively priced materials, particularly in price-sensitive raffia and cutlery segments. In 2011-2014, when the price of North Sea Dated crude was high, polypropylene demand grew near or below GDP rates, as its demand growth was limited by materials with more competitive cost bases. When crude oil prices moderated in 2015, PP consumption grew more than twice the global GDP growth rate. If crude oil prices remain under pressure, polypropylene growth rates should exceed GDP growth by a considerable margin.

Carbon footprint: To restore the image of plastics materials, the industry must continue to invest in sustainability initiatives that improve the collection, sorting and processing of post-consumer waste streams through new technologies in mechanical or chemical recycling. Advocates for the industry must correct false assumptions that alternatives to plastic are less damaging to the environment. An oft-cited study published by the UK Environment Agency in 2011 concluded that in order to match the carbon footprint of a single-use HMW plastic bag, a paper bag must be used three times and a cotton tote 131 times, and that study did not even consider the potential hygienic consequences of reusable grocery bags (1).

Through initiatives such as Alliance to End Plastic Waste (endplasticwaste.org), polymer producers, packagers and waste management companies must develop infrastructure to manage post-consumer polymer streams. In these extraordinary times, GPCA is providing direction to its members — many of whom are major petrochemical producers — and guidance on global best practice. GPCA can also educate consumers on the benefits of plastics, and on the correct disposal of plastics packaging.

“Through initiatives such as Alliance to End Plastic Waste (endplasticwaste.org), polymer producers, packagers and waste management companies must develop infrastructure to manage post-consumer polymer streams.”

In the near term, fully integrated oil producers, particularly those with flexible feed crackers, can offset some of the financial losses from the upstream part of their business. For now, ethylene from naphtha crackers are competitive with NGL-based production. Growing macroeconomic uncertainty has led to a review of many capital projects in the petrochemical space, moving some from “delayed” to “hiatus” to “hibernation”.

This renewed focus on capital discipline will delay pressure from a previously expected wave of new, world-scale projects, allowing existing producers to expand margins as the global economy recovers from the Covid-19 lockdown.

As the global economy bounces back, demand growth from higher value polymer segments, such as automotive, construction and durable goods, will return. Until then, the industry must focus on the basics — operational excellence, quality control, logistics optimisation, and, most of all, growing strong customer relationships.