Plastics industry profit margins have been shifting over the last few years. The chart above shows that industrial production (green line) has been making a slow return back to pre-2008 recession levels.
Another point on interest occurred in 2015 where we see plastics production prices (blue line) declining with natural gas prices (red line). Over the long-term historical look, this is a double-whammy on profit margins for scrap recyclers.
Large retailers, such as Wal-Mart and Target, have been hefting more weight on the industry through new coalition initiatives such as the Sustainable Packaging Coalition’s How2Recycle program. As the new ISRI Plastics Specifications reflect changes in the diversity and quality of the scrap plastic stream, changes in consumer behavior due to these initiatives will change the profit margins on certain grades. Unilever has also announced similar efforts to utilize more sustainable plastic packaging.
Production cuts in oil may not boost crude prices as previously expected. According to the Wall Street Journal, China and India have been capitalizing on low crude oil prices in the previous year to stockpile large reserves similar to those held by the U.S. and other industrialized nations. As both of these economies wrestle with burgeoning middle class populations with increased consuming power, oil speculation becomes increasingly difficult as OPEC has demonstrated they will collude to buffer any sharp market declines.
Looking at recent year-to-date export statistics from the U.S. ITC, export destinations have been quite volatile. 2015 to 2016 export numbers appear to be on track to move by double digit percentage points both positively and negatively depending on the market. ASEAN economies plus China and India have all increased their 2016 consumption compared to the year before, particularly Australia. Export statistics are based on major polymers. PVC demand increased considerably in India and Indonesia. Vietnam and India made large grabs for PET plastics. Chinese demand (including Hong Kong) went up in PE and Styrene but dropped significantly in PVC and PET.
For more information, contact ISRI Research Analyst Bernie Lee