(Bloomberg) — The chemical industry is heading for a slowdown as society turns against disposable plastics and the rise of recycling weakens demand, IHS Markit predicted at its annual World Petrochemical Conference.
After climbing to multi-year highs, chemical earnings will drop this year and won’t recover until 2023 as environmental issues add to the drag from a downturn in the global economy, according to the global research firm.
“Plastic waste I believe is going to be the sustainability issue of our time,” Jim Fitterling, chief executive officer of Dow Inc. and chief operating officer at DowDuPont, said Wednesday at the conference. “It represents not only the biggest risk to our industry,” he said, but also “one of the biggest opportunities.”
New plants, primarily in China, will oversupply chemical markets and depress margins, said Dave Witte, an IHS senior vice president. Earnings are likely to plateau at a level below last year’s, he said. Industry demand growth will slow to about 4 percent a year, from 4.4 percent, partly because recycled plastics are replacing virgin resins.
The European Union is leading a global movement to phase out single-use plastics and bolster recycling as society responds to an ocean pollution crisis that threatens the industry’s “license to operate,” Victor Bell, president of Environmental Packaging International, said in a presentation Tuesday. At worst, the backlash against plastic could potentially cut the growth in demand for new resin by half, although it probably won’t be that severe because of limits in recycling capacity, according to IHS.
“These waste issues are to some degree existential for the industry,” Witte said Wednesday at the conference in San Antonio.
The chemical industry is best positioned to combat plastic waste by developing new products and innovative ways to recycle, Fitterling said. Product bans are “a slippery slope” that do more harm than good, because plastics bring environmental benefits such as making vehicles lighter and keeping foods fresh longer, he said.
Fitterling helped create the industry’s Alliance to End Plastic Waste, which has pledged more than $1 billion over five years to the effort. A key focus is helping create waste-collection infrastructure around the 10 rivers in Asia and Africa that are the source of most trash pouring into oceans, he said.
Polyethylene, used in shopping sacks and packaging, faces a global oversupply in the near term, while an oversupply of ethylene, a precursor to polyethylene, will come early next decade, Witte said. U.S. plastics makers also will face pressure from natural gas liquids such as ethane, a key raw material, he said. The outlook is relatively better for polypropylene, used in bottle caps and carpets.