Plastics industry feedstocks at risk from the rise of Electric Vehicles

The plastics industry is close to being disrupted from both ends of its value chain, as I discuss in my New Year outlook for ICIS Chemical Business.

“How did you go bankrupt?” Bill asked.

“Two ways,” Mike said. “Gradually, then suddenly.”

These lines from Ernest Hemingway’s classic novel “Fiesta” (USA title ‘The Sun also Rises’), summarise the potential challenge for the plastics industry as we move into a Net Zero world.

As Hemingway reminds us, this challenge has been building for some time, as discussed here a year ago:

“Understandably, many people and companies hate the idea of having to leave the comfort zone of ‘business as usual’, where tomorrow is likely to be much the same as yesterday.”

And since then, the Net Zero agenda has become increasingly important. It will accelerate the split between potential Winners and Losers, as the transformation gathers momentum.

Auto industry developments highlight this issue.  As the European industry association, ACEA, reports for the period 2014 – Q3 2021:

Plug-in/Battery Electric Vehicles (EVs) were just 1% of the market in 2014, and 3% in 2019. But by Q3 2021, they had reached 19% as they entered their exponential growth phase
They have already overtaken diesel volume, which used to be more than 50% of sales as recently as 2016. And EVs are now impacting gasoline sales, which have fallen by a third since 2019

These trends are not just confined to Europe. China is currently 51% of the EV market, and the USA is moving rapidly to catch up after a slow start. Consumers clearly like to drive EVs, and find them easier to maintain. Insurance costs are usually cheaper, and the ongoing decline in battery costs means EVs will soon be cheaper than either diesel or gasoline (ICE) cars. And resale values for diesel and gasoline cars will also soon start to weaken as governments prepare to ban ICE sales.

In turn, this transformation is starting to impact oil and refining markets. Oil companies including Shell, BP and Repsol are accelerating their push into renewables and recycling, whilst TOTAL has changed its name to TotalEnergies to highlight the paradigm shift. Investors, too, are voting with their wallets as they realise refineries are likely to become stranded assets.

These developments will soon begin to impact the plastics industry as refinery closures start to reduce available supplies of naphtha, its core feedstock.  And at the other end of the value chain, brand owners are accelerating their moves to meet consumer demands for recycled plastic:

Global companies including Coca-Cola, PepsiCo and Unilever aim to use 25% recycled plastic by 2025; Nestle and Mars are aiming for 30%, whilst L’Oréal are targeting 50%
In Europe, 300 players along the value chain, including the European Commission, aim to boost the market for recycled plastics to 10 million tonnes by 2025

Essentially, therefore, the plastics industry as we know it today, may well start to move into an endgame as it is squeezed from both ends of the value chain.

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Source: icis.com

Plastics industry feedstocks at risk from the rise of Electric Vehicles