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The global economic slowdown, the trade war between the US and China, and the risk of recession repeatedly entered discussions during IHS Markit’s 2019 Global Plastics Summit, held this week in Houston, Texas, but no topic received more attention than the crisis around plastics waste. Speakers broadly agreed that the best solutions will require extensive collaboration up and down the value chain, from plastics producers through recyclers to brand owners.
“There are many risks to leaving the issue unaddressed—economic, environmental, and human health,” noted Dewey Johnson, vice president/base chemicals market research at IHS Markit. “More specific to industry participants are impacts on demand, diminished brand reputation, public safety, and investment community perspectives.”
The problem is systemic and involves many shareholders with varying options and priorities, Johnson stated. “We all must own the problem,” he said.
Nariman Behravesh, chief economist at IHS Markit, told attendees that the global economy is “back in the danger zone.” With growth slowing and trade tensions on the rise, there is a high risk that policy mistakes could result in recession, he said.
Perc Pineda, chief economist at the Plastics Industry Association presented the view from within the US plastics industry. On the positive side, the US economy continues to grow, consumers are engaged, the labor market is strong, prices are stable, and interest rates are low, he noted. At the same time, however, the global economy is weakening, trade-related uncertainties are slowing investment, there is a shortage of qualified labor for the plastics industry, and looming over all of these issues is the surging concern around sustainability.
No quick solution to plastics waste
Johnson highlighted several major challenges to solving the plastics waste problem. First, current policies, including bans, restrictions, and fees, are inconsistent and lack coordination. The recycling infrastructure required is also inadequate and inefficient. Whereas the petrochemical industry’s infrastructure is streamlined, optimized, large-scale, and profitable, the recycle processing infrastructure is underdeveloped, underfunded, small-scale, and financially distressed, he noted.
Although mechanical processes are currently most widespread, only chemical processes will be able to handle the large volume involved, but development and widespread implementation will take another decade. It is vital to understand and work with the investment community, Johnson said.
Brand owners are in a difficult position, under pressure from all stakeholders. “Though the sense of urgency is high, brand owners are not willing and able to pass on higher costs for solutions to consumers,” Johnson observed.
Global economy beset by uncertainty
Next month, the US economy will achieve the longest expansion on record, Behravesh noted, but growth is down, and the uncertainty surrounding the latest exchange of tariffs between the US and China is weighing down the economy. US tariffs on Chinese goods amount to a tax on US consumers that reverses the stimulative effect of the 2017 tax cuts, and while the cost to US consumers will diminish as trade is diverted, that will take time, he said. Assuming the tariffs endure long enough for diversion to take place, Vietnam, Bangladesh, and parts of Africa could see an increase in trade.
Although Europe is doing better than expected, with growth of 1–1.5% forecast, there are significant risks, Behravesh warned, the biggest being Italy’s threat to create its own currency and leave the euro. By contrast, he added, the effect of a hard Brexit would be small. As for China’s economy, it is currently very fragile, he said. It is not in recession, but there has been a significant slowdown in growth, and extremely high levels of debt in the country will make it difficult for the Chinese government to enact stimulative policies.
Slowdown in automotive and housing
There has been a significant slowdown in automotive, Pineda noted. The longer-term trend remains greater incorporation of plastics, but auto demand is weakening this year. The housing recovery, a major demand driver in 2018, is also slowing. Pineda highlighted a recent IHS Markit forecast that residential fixed investment will increase 3.3% in 2019, 2.1% in 2020, and 3% in 2021. Non-residential fixed investment is forecast at 2.7%, 0.7%, and 0.6% over the same period. Although US industrial production weakened in 2018, retail and food service sales held up, and plastics shipments were stable.
Resin exports surged to $36.2 billion in 2018, and the trade surplus increased to $18.6 billion, according to preliminary results, Pineda said. Exports of plastics products increased more slowly, to $26.5 billion, and the trade deficit increased to $11.5 billion.
Looking ahead, Pineda forecasts 2% growth in plastics material and resin production this year and 1.8% in 2020, whereas plastics products volume is forecast to grow 1.4% this year and 1.6% in 2020.
By Clay Boswell
Source: Chemical Week
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