Although plastic plays an important role in the fight against Covid-19, the demand for the material has tumbled across the globe. Here is what you need to know.
LyondellBasell Industries warns that the demand for plastic will tumble this year despite its many uses in fighting Covid-19. In fact, plastic is being used for food packaging, face masks, and other products that help to prevent the spread of coronavirus.
LyondellBasell - a US-listed chemicals group - predicts a 15% drop in the consumption of plastic
because people buy fewer household appliances and automobiles due to the pandemic. Such a drop signals a rare retreat of a substance that became extremely popular across the globe with rising living standards in the past. But the product is also linked to environmental damage due to discarded and throwaway products.
Bob Patel - LyondellBasell's chief executive - commented that plastic never normally declines even in recessionary periods. The available data for the global demand for polyethene and polypropylene for the last 25 years shows that the only year the demand for plastic declined was in 2008 - during the global financial crisis. But even in 2008, the decline was only about 3-4% and not 15%.
The decline will result in the risk of an oversupply of plastics. In fact, companies have invested heavily in new petrochemical complexes over the past decade - which showed a 3.5-4% long-term global growth in plastics.
In the United States alone, $200-billion was allocated by companies such as Royal Dutch Shell, Dow, and ExxonMobil for huge petrochemical complexes. This led to a surge in polyethene for shopping bags, pipes, glove ports
, and packaging film with over 105 metric tonnes produced in 2019 as per the data of ICIS. On the other hand, polypropylene used in car bumpers, crisp packets, and shampoo bottles stood at around 75 metric tonnes.
With the coffee chains in the country returning to disposable cups due to the pandemic situation and bans on single-use items such as stirrers and straws delayed due to coronavirus disruption, environmental protection groups fear a setback in the battle against plastic waste.
Polymers are in demand due to the Covid-19 pandemic. For example, hospital gowns and personal protection equipment are in high demand these days. But for many plastic producers, the demand is overshadowed by slumps in sectors such as aerospace, automobile, and construction industries.
The Wider Picture
As per Mr Patel, the chemical industry is facing two problems at the same time - the oil price crash as well as the coronavirus pandemic. The oil price drop earlier this year has dragged down the charge for a raft of substances linked to oil.
Even before the crisis, the values of quality plastic were at its lowest compared to the past few years. This is going to be a difficult year - with similar earnings to the 2008-9 period. Mr Patel says the worst is behind us and it is really about the pace of recovery right now. With the reduction in global supply, the profitability and margins of businesses will be drastically reduced.
An analyst at ICIS - Ciaran Healy - states that the polymer producers in the country will be negatively impacted with some of them registering losses in the second quarter of the year. In fact, the effects of the crisis will carry on into 2021. Getting back to high levels of profitability will take considerably longer.
As per Mr Patel, the low demand for plastic this year could end up less severe if we can avoid another major Covid-19 outbreak
. The demand for plastic may increase under such circumstances.