Last week, Mexico’s Revista MP published an interview conducted during our last trip to Mexico City, to present at ANIPAC’s 6to Foro de Materias Primas. Here follows its English translation. I look forward to hearing your comments.
Science, politics and emotion: A complex combination that covers the plastic industry
The polymer industry is going through tough times, not just because of the negative image that plastics have acquired, but also because of the bans that governments have enacted. Esteban Sagel says that by changing the perception of plastics from an emotional standpoint, we may be able to show consumers the advantages of this material.
MP magazine had the opportunity to speak with Esteban Sagel of Chemical and Polymer Market Consultants. He participated in ANIPAC’s 6th Raw Materials Forum in Mexico City, where he provided a very interesting vision of Polyolefins in North America, their current situation and the impact of trade wars was having. This is his perception of the plastics industry.
MP Magazine. What are the challenges that the plastics industry is facing today?
Esteban Sagel I believe the main challenge that the industry is facing is the universalization of the belief among consumers that plastics have a negative impact on the environment. And I say that it is the main one, because this belief can result in changes in consumer habits as well as in an increase in their support for more regulations to our industry. This could potentially result in a reduction in polymers’ consumption growth rates, impacting future investments and, consequently, decreasing job generation by our industry.
MP. In that sense, what can we do to solve them?
ES. Plastics are present in the environment due to a combination of different factors. On the one hand, we have the lack of appropriate infrastructures for the gathering and treatment of post-consumer waste. On the other hand, we have an increase in the use of plastics, as society seeks options that provide comfort to our hectic lives. Society has also looked for solutions that can improve food sanitation and reduce food waste, as well as product waste in general. These latter factors have resulted in an increase in the production of things like packages, containers and single-use products. These products, if not properly disposed of, end up in our rivers and beaches. And, last but not least, we need to consider the lack of civism in how we manage the waste we generate as consumers, which is one of the main reasons’ plastics end up in the environment.
When we see a turtle suffering because of a plastic straw, or we see dolphins or whales eating polyethylene bags, our instinct is to blame plastics for the issue. But that attitude disregards the fact that that piece of plastic was last held by a consumer, a consumer that either did not have an appropriate option to properly discard that piece of waste, or that even having that option decided to trash it into the environment.
The solution to this problem (our bad image, which is a consequence of the presence of plastic waste in the environment) is going to be complex. First, we need to regain control on the discourse on this issue. What I am saying is that we, as an industry, know that plastics are fundamentally a better environmental option than any alternative product that is proposed to replace them, whether it be paper, glass or aluminum. There are multiple studies, not directed or paid by the industry, which analyze the environmental impact of different raw materials and that constantly identify plastics as the most environmentally sound solution. The problem is that, by trying to use scientific arguments to counter an issue which is now rooted in emotions, we are failing.
Social networks facilitate the spread of terrible images of ocean and land-based wildlife being horribly impacted by plastic products that are left in the environment. No scientific argument we set forth is going to convince a consumer that is impacted by those terrible images. But we can appeal to their emotional conscience, reminding them of the very many positive impacts that plastics have in their lives. Without plastics, we could not improve efficiency in vehicles in order to reduce the use of fossil fuels and reduce greenhouse gas emissions. We also wouldn’t be able to reduce healthcare costs, particularly in sterile environments. It wouldn’t be possible to develop light and efficient turbines to generate wind power, or to protect solar energy panels. Consumers are likely not aware that polystyrene, one of the more demonized products by the movement against plastics, has a 16% lower energy consumption and produces 9% less greenhouse gases than other materials used for thermal isolation. We need to find a way to inform consumers that plastics have more positive than negative impacts in their lives and the environment. And we must do this well beyond our industry’s borders. We need to design campaigns that reach consumers’ social networks, which convey scientific facts in a way that appeals not just to consumers’ intellect, but to their emotions as well.
In another order of ideas, governments, polymer producers and distributors, packaging manufacturers and consumer product companies, have all a part to play in the reduction of environmental waste. The compromise should come from all, and not just for some of the members of in the value chain. On the one hand, governments need to create, or supply incentives for the development of, systems to gather, treat, recycle or generate energy from post-consumer waste. On the other hand, polymer producers, together with packaging producers and consumer product companies, should work together to help reduce the amount of waste that consumers generate, and bring forth economically viable technologies that facilitate the recycling (physical or chemical) as well as the reuse of post-consumer or post-industrial plastics.
Finally, the solution to this problem requires the participation of consumers, who need to assume that they also have a responsibility in the management of waste. Consumers should ask themselves questions such as do I really need a plastic bag to carry a single product out of a store, or can I carry it by hand? Is it a good idea to throw this plastic bag or product on the floor, or should I use one of the means available for its disposal?
As you can see, this is a complex and multi-faceted issue, which is going to require a lot of efforts from everyone in order to solve it.
MP. What’s the vision on polyethylene after the free trade agreement?
ES. Initially, the new version of the free trade agreement (USMCA—The United States-Mexico-Canada Agreement) does not have a big impact in the polyethylene market. Trade for this product remains tariff free, so we are under the same condition as what we had before. The only area where there may be an impact is the automotive segment. The new rules require that 30% of a vehicle production is done by workers that earn 16 dollars per hour, which is approximately three times the average salary of a Mexican automotive industry worker. In any event, polyethylene is not a material widely used by the automotive industry; therefore, this rule of origin would have little impact on this product.
MP. What’s polypropylene’s situation?
ES. After struggling for many years, polypropylene is starting to see an increase in the interest for new investments in production plants. During four of the last six years, polypropylene’s demand growth in the U.S. and Canada has surpassed polyethylene’s demand growth. This has helped reduce the concern that high polypropylene prices versus polyethylene could result in lower demand growth rates, which in turn would reduce the attractiveness of new investments in capacity. As of today, there are as much as seven projects for new PP plants announced for the region, which would result in a much needed increase in polypropylene supply in North America.
MP. How are these two scenarios impacting the Mexican market for those raw materials?
ES. In polyethylene’s case, we expect continued pressure to increase exports from the U.S. to Mexico. The U.S. Gulf Coast is seeing the completion of the last few plants of the first wave of investment in polyethylene capacity, which were incentivized by the low raw material (ethane and ethylene) costs. As Braskem Idesa consolidates its leadership position in the domestic market, it is likely that any demand growth beyond the domestic product availability in Mexico will be captured by North American producers.
In the case of polypropylene, we may eventually see a similar situation develop. In recent years, the reduced availability of polypropylene in the U.S. resulted in a reduced pressure from imports coming from that country into Mexico. As the new polypropylene plants begin their production, we should expect an increase of the exports to Mexico. However, we don’t believe it will be until 2021/2022 that we will begin to see an expansion of those exports.
MP. What are the risks that the trade war between China and Mexico brings?
ES. The main risk we could face is a global recession, caused by a reduction in economic activity in those giants of the global economy. Specifically for the plastics industry, the trade war is fostering changes in trade just when, in the case of polyethylene, the U.S. is in the middle of a historic expansion of its production capacity. The combination of negative economic perspectives (which reduce demand growth expectations) together with changes in trade flows (with displacement of suppliers and entrance to new markets, which require new suppliers to be competitive in order to gain market share) and increased availability of material (polyethylene in the U.S. and China, for example) is resulting in persistent price reductions as well as in a drop in margins for polymer producers, particularly polyethylene producers.
MP. You conducted a poll in LinkedIn; what was it about and what conclusion did you reach?
ES. The non-scientific poll tried to determine what are the main risks that we are facing as an industry, from the standpoint of the companies that are in the market on a daily basis. The objective was to measure the industry pulse on those risks as well as to gather ideas of how they can impact us and what measures can we take to minimize those impacts. The conclusion was that poll participants see plastics’ negative image as the main risk that we are facing and that it can impact us both from a short and a long term perspective. There were other risks mentioned, including raw materials oversupply, trade wars or Brexit, but without a doubt plastics’ negative environmental image was the most relevant one.
The other conclusion, that was very interesting, was that where there are risks there are also opportunities. There were some ideas mentioned, like taking advantage of the raw material surplus in some regions as a source of low-cost feedstocks for others, effectively exporting not just the product but also the cost advantages that producers like the U.S. enjoy. Therefore, amid the current gloominess, we should continue to look for the opportunities that changes and transitions always bring.
MP. Tell me what can be done to improve the situation we are in?
ES. At the end of ANIPAC’s Raw Materials Forum, there was an underlying message about what should be the focus we need to give to this problem, and it was that we need to realize that the problem is everyone’s problem, and not just a producer, government, distributor or consumer problem, and that it needs to be faced by everyone involved.
The industry needs to create a unified front in order to challenge the perception that plastics are negative for the environment. What I mean is that a converter cannot be simply waiting for the raw material producer to get the ball rolling, or that a producer cannot expect that the industry association is the one that leads the efforts, or that a distributor cannot wait for converters to take action. The final message of the forum was that we all need to work together to change the message that is being promoted, and that it needs to be done not just from a scientific standpoint, but from an emotional standpoint as well. It is important that we find the many examples that counter our industry’s negative perception, and which can appeal to the consumers’ emotions.
The other part of the solution is to realize that at the end of its intended initial purpose, plastic waste still has value. Plastics waste can be a source of energy or of raw materials. Therefore, what we need to do is to gather the waste, reuse it when possible and recycle it if not. The solution is a complex one, because it requires the participation of many actors in order to enact it. It is indispensable to count with technological solutions, with a government that takes part by creating systems to gather waste, with a market that allows to monetize that waste, and with consumers that realize that plastics are not bad, but not properly disposing waste is the real problem here.