The exhibit below shows a “crazy” 5-year extreme price difference between polymer pricing in Asia and the US, and scanning our longer-term database we believe this is an all-time extreme not just for the last 5 years. This is very bad for US polymer sellers in the medium to long-term, despite some windfall profits that may extend through 1H 2021. The high prices are doing a couple of things, they are encouraging plastic consumers to experiment with alternative materials and they are encouraging them to experiment with other suppliers, including imports.
Normally there is a reluctance to try something new – “if it ain't broke, don’t fix it” – and polymer buyers tend to stick with the grades they know and the suppliers they know. Things are now “broke” and so the experiments begin – using other people’s polymer - for example, could Braskem use this as a way to penetrate the US polyethylene market from Mexico (assuming they can produce), and should both Shell and Borealis use the opportunity to introduce their products into the US early to set up demand for their new facilities – Borealis has the product in Europe and the Middle East, Shell would have to source from someone outside the US with the same technology.
Polymer consumers will also likely experiment with design – can they make a good enough product using less polymer, or more recycled polymer. Buyers of polymers for packaging could look to other materials such as containerboard. Anyone buying durables from China over the last 12 months will have experienced the use of different packaging materials (mostly expandable polystyrene versus containerboard). As makers of cheap durables, Chinese manufacturers will switch packaging based on price very quickly – we could see some of that in the US this year.
For the US producers, the problem is that some of this experimentation will lead to permanent change – some of it good, but most of it bad. A good change would be product-specific – i.e. a change from polypropylene to polyethylene because of relative price. Bad changes might involve downgauging (using less polymer for a certain application) or permanent substitution with another material.
Adversity always drives innovation, and the polymer buyers in the US are facing severe adversity right now. Not only are polymer prices high, but in some cases, availability is so limited that consumers are shutting down. Those that can exploit this problem – new polymer sellers for example – will do so. While these high prices should also be a boost for recycling, it is unlikely that anything can be done near-term to do much more than add some incremental volume of recycled polymer and the supply crunch will likely be over before any larger projects get going.
