Given the importance of plastics to our modern way of life, it’s no surprise that the petrochemical industry is predicted to exceed $1 trillion USD in value by 2023. Petrochemicals – organic compounds created by “cracking” oil and other raw hydrocarbons, are the primary material input to the traditional plastics industry. Of the two types of petrochemicals, olefins and aromatics, olefins, which include ethylene and propylene, are of the greatest importance to the industry.
With the growth of the plastics industry in recent years, you might assume that the petrochemical industry, the primary producer of plastic feedstocks, is experiencing good times. Although this has often been the case in recent years, there are signs that hard times may be ahead for the industry. For example, the Houston Chronical, a Texas newspaper based in a region with a traditionally strong petrochemical industry, recently reported that German chemical maker BASF has shut down a large chemical plant in Louisiana and is laying off 6,000 workers worldwide. In addition, a survey of 52 petrochemical companies found that margins have fallen 22% in the first quarter of 2019.
The layoffs and falling margins are symptoms of a trifecta of challenges facing the petrochemical industry. The first factor, a slowing global economy, is something that the petrochemical industry has weathered many times. The second factor is the ongoing trade war between the US and China. This factor has primarily hurt production in the US, and it’s likely that other regions will eventually take up the slack. However, the time and expense required to build new plants will ensure trouble in the coming years. The final factor impacting the industry is a public and political backlash against plastics waste.
Although the downturn is bad news for companies that produce petrochemicals, the impacts on the plastics industry are considerably more mixed.
One factor acting in the industry’s favour is the recent rise in plastic feedstocks sourced from biomass or other non-hydrocarbon sources. Another is the fact that new feedstocks are becoming less important with recent changes in recycling technology, which allow products to be recycled more times. In addition, biodegradable plastics are likely to alleviate some of the backlash against the industry. Finally, weakness in the petrochemical industry, while bad in the long run, is likely to result in lower plastics feedstock prices in the near-term. As a major industry, the plastics industry is not immune to cyclical patterns of growth. It seems likely that a downturn is coming. Fortunately, the plastics industry is in a strong position to weather the storm.