Global consumption of plastic in 2007 was 400 billion pounds.[1] In 2010, researchers forecast consumption will jump 25% to 500 billion pounds globally.[2] Plastics' physical advantages, such as weather and heat resistance, flexibility, and light weight have made it a favorite material in everything from beverage bottling to body armour.[3] While companies like DuPont (DD) and General Electric Company (GE)[3] engineered new uses for plastics, cheap petroleum prices fueled low-cost production, and supported substitution away from paper, metals, and glass. However, with oil and gas (the main raw materials for plastic production[4]) spiking in 2008, alternative sources are surfacing. Bioplastics, which are produced from high-fructose corn syrup, vegetable oils, and even bacteria, pose a threat to traditional manufacturing processes much like Renewable Energy does to Oil & Gas Refining & Marketing.[2]
The rapidly rising demand and high Oil Prices have raised concerns with environmentalists, who disapprove of the poor degradability of petroleum-based plastics[5], and politicians and industrialists, who desire to limit imports of foreign oil and lower costs of production.[6] Already, China and San Francisco have banned the use of plastic bags[6] and Ireland passed a 33 cent tax on each plastic shopping bag.[6] Seattle has required businesses serving food to stop the use of foam and petroleum-based plastic by 2010.[7] In response, start-ups like Metabolix (MBLX) and conventional plastic manufacturers such as DuPont (DD) and BASF SE (BASFY) have begun developing bioplastics.[8]
[edit] Which companies benefit from high plastic prices?
- DuPont (DD), BASF SE (BASFY), and Metabolix (MBLX) develop and manufacture bioplastics. Rising Oil Prices lead to increasing cost of production of petroleum-based plastics. As expenses rise, the spread between producing conventional plastics and new bioplastics narrow.[6] This dynamic lets legislation restrict petroleum-based plastics more easily as it is less distortive, and supports free enterprise to build plants to manufacture plastics from vegetable oil or sugars rather than using petroleum.[2] As a result, companies that are producing bioplastics benefit the most from rising plastic prices. They capture market share from conventional producers by either forced bioplastic mandates, or better margins resulting from lower input costs and/or tax incentives.
- Promotion of bioplastics supports crop usage.[6] As such, companies that benefit from higher Corn Prices and Soybean Prices, also benefit from rising plastic prices. This includes fertilizer companies like Mosaic Company (MOS), Agrium (AGU), and Potash Corporation of Saskatchewan (POT) and seed marketers such as Monsanto Company (MON) and DuPont (DD).
- Recyclers see improved volume and gross profit margins when prices are high. Only 6% of plastic made in the United States was recycled in 2005.[6] As prices rose into 2006, the number of PET bottles jumped 102 million pounds.[3] In addition, the link between Oil Prices and plastics mean that high plastic prices imply an environment of high energy costs. Recycling plastics produce 70% energy savings, so the net benefit is greater with high prices.[9]
- Because plastics are used in many facets of life, a localized rush of demand that causes a particular plastic to rise in price, and not higher input costs, obviously benefits the manufacturer of the product. For instance, a war spikes the need for kevlar. Kevlar manufacturers would be positioned to take advantage of the increase in demand. Another good example is PVC piping. Good economic growth supports expanding construction. PVC pipes are used extensively in plumbing when construction buildings. PW Eagle (PWEI) benefits with construction booms.
[edit] Which companies suffer from high plastic prices?
- Companies that depend heavily on plastics in production suffer the most. The largest consumers of plastics (26% of market) is the packaging industry, which include bottles, bag, and food container manufacturers.[10] Beverage companies like Coca-Cola Enterprises (CCE) and Pepsi Bottling Group (PBG) pay more to buy plastics needed to manufacture bottles. Building and construction account for 21% of all plastic demand[10] and the automotive industry uses 4% of all plastics in the United States.[11] Automotive manufacturers, including General Motors (GM), Toyota Motor (TM), and Ford Motor Company (F), use plastics in engine tubes, tires, panels, and windows.[3] Large construction firms like Avatar Holdings (AVTR), KB Home (KBH), and Lennar (LEN) use plastics in windows, flooring, and plumbing.[3] Food packagers also consume plastic. Consumer and institutional goods, like toys and sporting goods, use 13% of all plastics.[10]
- High plastic prices support production of bioplastics.[6] This manufacturing process in turn demands sugars and/or vegetable oils, so any company that uses these sources will face greater demand for the same resource. For instance, food processors, like Tyson Foods (TSN) and Smithfield Foods (SFD), compete for the same corn that it uses for feed to livestock as DuPont (DD) or BASF SE (BASFY) would use to manufacture bioplastics.
As the main raw material inputs, Crude Prices and natural gas prices impact the cost of plastic production. Plastics and energy prices move in unison much like gasoline does with crude; the general directions are the same, but there are slight variations depending on supply and demand.[12]
 12-month Historical LME Plastics [12] 12-month Historical Crude (Black) and Natural Gas (Blue) Plotted using FutureSource [13][edit] Plastics' Oil Consumption
Americans consume 7.5 billion barrels of oil annually. 254 million, or 3.6%, is used in plastic and chemical production.[8] The U.S. bottled water market uses 17.6 million barrels of oil annually in manufacturing its products. This usage is equivalent to 1.5 million cars on U.S. highways.[14] Further, Americans used 100 billion plastic bags in 2007, which equates to 12 million barrels of oil.[14] The nation imports 13.15 million Barrels per Day (bbl/d or bpd).[14]
[edit] What Impacts the Price of Plastics?
Demand for plastics has been generally inelastic as no other products provided a cheaper alternative. [2]. However, the supply has met the demand. As indicated in the chart, production has steadily risen about 5% annually, with production greater than 230 million metric tonnes in 2005. Two periods, the 1973 recession and the early 1980s did have world production decrease or stall; however, the trend is higher. The main driver for price movements has been Oil Prices. [6] Cheap petroleum kept the cost of petroleum-based production below alternatives like paper, metal, and glass.  World Plastics Production [15] In 2008, high petroleum prices made bioplastics a viable alternative. [6]
[edit] Legislation
Legislation is a key determinant of plastics price. In the case of China, San Fransisco, and Ireland, the governments banned or taxed the use of plastic bags.[6] These types of laws directly decrease demand. Other legislation actions include the U.S. House requiring that all spring water be packaged in bioplastics[16] and Seattle requiring all businesses serving food to use bioplastics by 2010.[8] These policies favor bioplastic manufacturers and hurts conventional petroleum-based plastics by cutting out demand.
A move towards environmentally friendly products is negative for conventional plastics. Petroleum-based products decay slowly and account for 25% of all landfill content.[17] Further, each manufactured pound of plastic produces 2-3 pounds of carbon dioxide.[5] A move towards using reusable clothed bags, like in Ireland[6], or promoted by grocery stores such as Safeway (SWY), decreases demand for plastics.[18]
[edit] Bioplastics Development
Innovation in bioplastics will decrease plastic prices if it drives input costs below Natural gas or Oil. So far, companies have found ways to produce plastics by using sugars, vegetable oils, and bacteria rather than petroleum. The European Bioplastics trade group predicts that the bioplastic industry will grow 17% a year through 2012 and have an annual capacity of 1.5 million tons by 2011.[2] Profitability and increasing returns to scale support competitiveness of bioplastic manufacturers.
[edit] Futures Contracts
The London Metal Exchange lists two plastic contracts. They are tools for hedging pricing risk in the plastic industry.
- Linear low density polyethylene (ticker: LL) is used in a wide range of applications that include pastic bags, sheets, pipes, toys, and flexible tubing.[19]
- Polypropylene (ticker: PP) is used to make warm-weather gear, plastic moldings, storage boxes, trading cards, and manufactured rugs.[20]
[edit] Trade Stats
The following tables show imports and exports between the United States and its top 5 trading partners.[21] Exchange Rates, tax policies, and resource availability impact trade flow.
| U.S. Imports of Plastics Material (in $000s)[22]
| 2003
| 2004
| 2005
| 2006
| 2007
|
| Canada | 3,890,006 | 4,572,834 | 5,401,608 | 5,825,941 | 5,632,746
|
| China | 114,312 | 162,657 | 389,525 | 505,805 | 440,831
|
| Mexico | 441,829 | 708,824 | 960,493 | 1,030,200 | 977,674
|
| Japan | 831,602 | 920,217 | 932,624 | 1,006,068 | 965,724
|
| Germany | 765,190 | 887,699 | 996,031 | 1,095,204 | 1,101,484
|
|
|
| U.S. Exports of Plastic Materials (in $000s)[23]
| 2003
| 2004
| 2005
| 2006
| 2007
|
| Canada | 3,949,221 | 4,556,134 | 5,309,021 | 5,687,847 | 5,623,726
|
| China | 937,851 | 1,355,991 | 1,809,248 | 2,143,300 | 2,928,132
|
| Mexico | 2,927,434 | 3,536,527 | 4,371,224 | 5,068,235 | 5,200,682
|
| Japan | 689,237 | 877,484 | 1,012,881 | 1,097,169 | 1,140,175
|
| Germany | 232,186 | 285,662 | 365,662 | 453,363 | 498,537
|
|
|
[edit] References
- ↑ European Bioplastics "Characteristics of Bioplastics"
- ↑ 2.0 2.1 2.2 2.3 2.4 Wikipedia Article "Bioplastic"
- ↑ 3.0 3.1 3.2 3.3 3.4 WikiPedia.org "Plastics" Article
- ↑ AmericanChemistry Plastics Overview
- ↑ 5.0 5.1 EcoGeek "Bioplastics' Leg Up on Conventional Plastic" Author: Jaymi Helmbuch, Aug-26-08
- ↑ 6.00 6.01 6.02 6.03 6.04 6.05 6.06 6.07 6.08 6.09 6.10 Nerac Insights, "One World: Bioplastics", Author: Denise Ryan
- ↑ Sustainable Business "Demand for Biodegradable Plastics Growing"
- ↑ 8.0 8.1 8.2 Seeking Alpha "Metabolix: Profitable Plastic Production"
- ↑ WikiPedia.org "Recycling"
- ↑ 10.0 10.1 10.2 Answers.com "Plastic Materials and Resin"
- ↑ US DOE Fact #352
- ↑ 12.0 12.1 12-month Historical LME Plastics
- ↑ FutureSource - Futures & Commodity Quotes
- ↑ 14.0 14.1 14.2 Business Shrink April 26, 2008, "America's Dirty Little Oil Secret: Plastic Bottles and Bags"
- ↑ World Plastics Production Chart, PlasticsEurope
- ↑ "U.S. House uses Iowa bottles made from corn" Sept 24, 2008
- ↑ The Environmental Literacy Council "Plastics"
- ↑ Reusable Bags Trend Facts
- ↑ WikiPedia.org LL Article
- ↑ WikiPedia.org PP Article
- ↑ FTD - Top 15 Trading Partners (2008 YTD)
- ↑ FTD Imports
- ↑ FTD Exports
|
|
Edit Metric
Edit
History
Bookmark
