Original by Dr. Steve Wong
October 31, 2023
As reflected in the recent third-quarter performance reports from petrochemical companies, the profits and revenues have seen significant declines on a global scale, indicating that the industry is entering a period of recession and stagnation. Notably, companies like Dow Chemical and SABIC have experienced profit drops of 60% and 70%, respectively, compared to last year. The aforementioned suggests that they consider reducing production to mitigate losses and indirectly alleviate the oversupply issue, which, in turn, can support the price stability of plastic materials. We hope petrochemical plants can implement improvements even within a fiercely competitive environment.
According to the market data, global plastic production amounts to approximately 400 million tons per year, with about one-third of this production occurring in mainland China and around 20% in the United States. The rest is distributed across the Middle East, Europe, and other Southeast Asian countries. Recent years have seen China opening its petrochemical sector to private enterprises, leading to a significant increase in production capacity. For instance, the annual production capacities of PET and PP have exceeded 70 million tons, and that of PE has reached over 40 million tons. Together, these three materials constitute more than 200 million tons of global production capacity. There are also other materials such as PVC, ABS, PS, and PC, each with output exceeding tens of millions of tons. When considering additional materials like PMMA, nylon, and PBT, China’s total production capacity far exceeds 250 million tons. Furthermore, production output will increase in the coming year or two. In many cases, China’s current production capacity has created oversupply, which has become more pronounced amid a slowdown in demand and the current economic and political climate.
The imbalance in the supply and demand of plastic raw materials, coupled with overproduction, has emerged simultaneously in other countries as well. As a result, raw material prices have become cheaper than recycled materials and, in recent years, placed the recycling industry in difficulties, leading to the closure of many recycling plants. Recycling companies that do not count on the support of brand owners have difficulty running their businesses as their operation costs are higher than the selling price of recycled products. Our industry must introduce an Extended Producer Responsibility (EPR) system and enforce the use of recycled materials. This system must be global in scope because limiting it to Europe and the United States would only lead to Southeast Asia exporting recycled materials to Europe and the United States, which would undermine the local recycling industries.
Currently, the cost of production for recycling companies in Europe and the United States is exceptionally high. Even when selling prices are higher than in Southeast Asia, many companies still operate at a loss. In recent years, some recycling factories have been acquired by petrochemical plants to become part of their recycling sector, thus promoting environmental protection and corporate culture. However, with the declining profits and increased losses incurred by petrochemical companies, it remains to be seen whether they will continue to support the operation of their recycling factories.