For decades now, China has been all up in our business. From displacing entire manufacturing sectors and competing unfairly with US moldmakers to championing a truly singular definition of intellectual property, China has been a thorn in the side of the plastics industry. You can add China’s pursuit of self sufficiency in plastics to that list, according to some industry observers. Paul Hodges, a business consultant who sits on the ICIS advisory board and is a global expert with the World Economic Forum on sustainability and the chemicals industry, addressed this issue in a recent ICIS blog post, “Houston, We Have a Problem,” that got my attention.
The Houston Hodges calls out to is not Mission Control, of course, but the petrochemicals complex, and it will take more than duct tape to fix the problem. If, indeed, it can be fixed at all.
Over-investment in capacity
Based on Q1 data, China’s self-sufficiency level in polyethylene is likely to reach 70% this year, versus just 51% in 2020, and in polypropylene, it will likely reach 96%, writes Hodges. Meanwhile the global industry was fooled into believing that China’s stimulus program would continue to grow demand “for decades, and at double-digit rates,” leading to over-investment in new capacity. “Not only Houston, but everyone who currently relies on exports to China is wondering what happens next,” writes Hodges.
In a recent article published in PlasticsToday, “The Plastics Industry Is Undergoing a Global Shift,” author Dan Pototsky referenced a report from management consultancy Roland Berger about historical disruptions to the global polymers market. China’s path toward self sufficiency, according to the consultancy, is the sixth such disruption, but it's already yesterday's news. We are now in the seventh great disruption, a confluence of strategic challenges that “must be resolved as a whole, making [it] the most challenging one to date.” The other five disruptions, according to Roland Berger, begin with the invention of Bakelite in around 1907 followed by industrialization, technology licensing, the emergence of the Middle East as a downstream producer of feedstock, and the shale revolution in the United States.
Although the seventh disruption does not explicitly call out China, some of the factors that define it — supply chain issues, geopolitical tensions, and on- and near-shoring — are certainly related. The other factors cited by Roland Berger are ESG policies, innovation-led sustainability, and volatile energy prices.
Business as usual is not an option
For his part, Hodges also cites sustainability as a game changer for the plastics industry and urges stakeholders to make a profound commitment to solving the plastic waste problem and clearing a path for the circular economy.
He and Roland Berger concur on the ramifications of this shift in the plastics industry. “Essentially, China’s move to self-sufficiency and the need to deal with plastic waste means . . . business as usual [is not an] option,” writes Hodges. “There is only limited time available to achieve the necessary transformation. Winners and losers are already starting to emerge.”
Roland Berger has some thoughts on who those winners will be: “Polymer industry players who understand the risks and opportunities, think clearly and holistically, and move strategically and decisively to address the challenges effectively will come out on top.”
So, that's the view from 36,000 feet. I wonder, though, what those of you in the trenches think. Do you see China’s pursuit of self-sufficiency as a threat to your business? What are you doing to come out on the winning end? And what, if anything, should industry as a whole do about it?