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Are product bans a serious threat to plastics industry growth?

Jolly Sunshine Limited | Updated: Nov 05, 2018

    How many product bans will it take to have a financial impact on the global plastics market?


It's a serious question. Consider the data. Global resin capacity is skyrocketing, especially in the United States. Resin companies are making more plastic for a reason: Markets are growing, primarily in developing countries. Consumers, especially in places like China and India, are buying more plastic products, and not just packaging.


But there's also a growing awareness around the world about the problems that happen when we pump more plastics into places that don't have the infrastructure to deal with it. Not enough is getting recycled. Too much ends up as litter, even in places that even have systems in place to deal with plastic waste.


There's a chorus of critics saying that there's still too much plastic falling through the cracks, ending up in oceans, lakes and rivers, as litter on the side of highways or just taking up space in landfills.


The result is we're seeing more bans on single-use plastics. They started with T-shirt bags, then jumped to drinking straws. Now other products are being targeted: balloons, cigarettes, closures, cups and more.


Most plastics processors have been able to watch the unfolding drama from a detached vantage point. After all, most don't make polyethylene bags or polypropylene straws. And most don't make polyester balloons or polystyrene cups, either. The bans, so far, won't hurt them.


Likewise, resin and machinery companies have been able to read the headlines without too much concern about their own businesses. There aren't any PP resin plants that devote more than a fraction of their output to making, for example, drinking straws for McDonald's or Starbucks. Even if that business disappears completely, it barely registers a blip on the balance sheet.


Still, financial analysts are reading the headlines too, and they're starting to wonder. We've noticed a growing number of quarterly conference calls where plastics company CEOs and CFOs are fielding questions about the potential impact of product bans and negative consumer sentiment on their bottom lines.


Last week, by coincidence, two reports came out that tried to pin down exactly what this all means to plastics and other industries. Major financial institution Citi published a report, "Rethinking single-use plastics," that takes an in-depth look at the issue and its impact.


The report says: "As plastics face increased regulatory and consumer scrutiny, substrates including metal, glass, and paper may potentially be positioned to gain back some market share. ... However, consumer choices are not always clear cut, as other substrates may offer more favorable recyclability and waste performance at the expense of plastics' cost and performance advantages."


Market research firm Freedonia Group Inc. also published a white paper, "Single-use plastic bans & restrictions," which notes that the economic impact on the plastics industry "is already manifesting." The report warns of a calamity for plastics — if some proposed initiatives, such as the ban on all single-use products recently unveiled in India, are not scaled back.


"Nevertheless, a global cultural shift toward a more sustainable future is clearly underway," the report says. "As these plans take shape in reality, businesses will have to adapt in order to remain competitive in key markets — from the city of New York to the state of California to the 28 member states of the European Union."


As both reports note, the plastics industry is reacting to the challenge. Some companies, for example, are pursuing M&A strategies aimed at sustainability goals. And major U.S.-based resin suppliers have set a voluntary goal to ensure that all plastics packaging is reused, recycled or recovered by 2040.


Both reports say biopolymers could become more important in the future, especially biodegradable or compostable materials.


It's easy to be skeptical about predictions of a future where more plastic is recycled or composted, because there are big hurdles to overcome. But investors and bankers see product bans as a threat to future growth.


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