The global technology race is well underway in artificial intelligence, semiconductors, and space technology, but, in many cases, it would still be at the starting line without polymers. Plastics are ubiquitous and often foundational in the production process. Yet, the petrochemicals and plastics industries are experiencing their own tectonic changes. It’s time to talk about a new technology race — the polymer race — and what will separate the winners from the losers.
Global net oil refinery volume growth in 2024 is projected to be the highest since 1977, according to an RBC Capital Markets forecast published in April 2023. Refining capacity is expanding at a rate unseen in nearly two generations. And while some are predicting an end to this upward trend and threatening to leave refining capacities stranded, in the long run, they are probably mistaking short-term volatility for something else.
New players enter the scene
Simultaneously, a shift in the global distribution of polymer market share is taking place. Competition is intensifying between traditional industry leaders and new players entering the scene. As reported by Plastics Europe, the European share of global polymer production fell to 15% at the end of 2021, while total world production grew by 4%, with China gaining even more significant share. At the same time, India is emerging as a regional leader set to dominate the Asian market. Market intelligence firm GlobalData predicts that India will account for 47% of new-build and expansion refinery projects in the next five years. Also, as of 2022, Russia has been blocked from direct involvement in the global polymer value chain, with restrictions or limitations placed on its oil and gas exports, while the United States has overtaken the European oil and gas market. In a recent report, international management consultancy Roland Berger described this set of tectonic changes as the “seventh disruption” of the global polymer market. But one could call it another race for technological supremacy.
Supply chain disruptions
The COVID-19 pandemic caused significant disruption to global supply chains, leading to shortages of raw materials and finished products. This has resulted in a shift in the distribution of market shares, with new players emerging to fill the gaps left by traditional suppliers in all areas. The polymer market is a critical component of the global economy, with applications in a range of industries, including packaging, automotive, construction, and electronics, and it also suffered from disruption to global supply chains.
The polymer market is dominated by a few major players, including Dow Chemical, BASF, ExxonMobil, Chevron, LyondellBasell, and so forth. These companies have traditionally controlled a significant share of the market, but the disruption caused by the pandemic has opened the door for new players, notably India and Vietnam, which also welcomed production facilities transferred from China. The transfer of production facilities from China to other countries was one of the key drivers of this disruption. China has long been a major producer of polymers, but the pandemic highlighted the risks associated with relying on a single supplier. The flow of goods can be severely disrupted because of internal policies, such as the massive shipment delays that resulted from China’s zero COVID policy. Consequently, many companies started looking to diversify their supply chains or even moving production back to their home countries, as has happened in the United States facilitated by the Biden administration’s Build Back Better plan.
But the pandemic really gave visibility to a trend that had started earlier. In 2018, a trade war of sorts began between China and the United States, when the Trump administration banned state agencies from using systems or equipment produced in China. As the two countries’ high-tech sectors were broadly interdependent, that perpetuated the idea of domestification of the major advanced manufacturing facilities by the two leading global economies. The war in Ukraine and subsequent sanctions imposed on Russia added another factor driving disruption — a shortage of raw materials.
Many companies across the globe struggled to secure the raw materials needed to produce everything from microchips to other products, leading to shortages and price increases. The plastics industry was no exception. Overall, the disruption to the global polymers market is likely to continue for some time. Countries are racing to bring production facilities back and secure the raw materials they need to meet demand.
Balancing financial incentives and environmental standards
As the market continues to evolve, the global economy and the industries that rely on polymers will feel the impact. All the leading world economies will try to localize technology-intensive and strategic production within their own country or region of influence to build up technological sovereignty. The US federal government has supported the development of the Polymer Cluster Initiative within the Build Back Better plan. India is launching its Barmer mega oil refinery and petrochemical complex. Both countries are enjoying growing exports of fuel and crude oil to the European Union at elevated prices. And China is flourishing with investments from the Middle East and cheap oil and gas from Russia, which are significantly boosting polymer production.
According to Roland Berger, countries that are able to localize production chains and technologies faster than others and have the resources to operate these chains within their own markets will win. But countries will face a trade off.
First, it’s hard to make localized full-cycle manufacturing economically feasible, as there is no opportunity to leverage cheaper raw materials, a low-wage labor force, or differences in currency exchange rates. Reducing ecological standards could save money.
Second, greater concentratation of petrochemical manufacturing facilities makes it harder to meet high environmental standards while maintaining profitability. Balancing the two could result either in rising prices for all industrial and consumer products — since plastics are ubiquitous — or raise the risk of subverting local environmental concerns. The situation is even more complex when one takes into consideration that currently promoted “green” alternatives rely heavily on synthetic polymers, such as poly(methyl methacrylate) to make LCD screens, high-density polyethylene to produce electric vehicle components, and ethylene to make photovoltaics.
Challenges and opportunities
The scenarios described above — deglobalization, radical price increases, and environmental challenges — are hypothetical and represent just the most extreme ways the situation might evolve. However, global trade data already show early signs of reglobalization. This global shift in the plastics industry creates certain incentives at the local level along with a wealth of opportunities.
To increase efficiencies in refinery processing and reduce resource consumption and greenhouse gas emissions, the plastics and petrochemicals industries are heavily investing in R&D — it is expected that global R&D expenditures in this field will double by 2030. This also creates incentives and opportunities for local producers of all kinds — from packaging to transportation and even renewable energy generation — as, again, polymers are used virtually everywhere. In accordance with Roland Berger’s concept of the seventh disruption to the polymers market, in the long term, those who win the race to localize production, form markets, and achieve high environmental performance will rule the future.
About the author
Dan Pototsky is a graduate of Zhejiang Gongshang University, a consulting adviser on markets, and a junior research specialist on international trade.