The litmus test for the global economy

Something quite dramatic is happening in the global economy.  Of course, Wall Street analysts still maintain that the impact of the Covid-19 pandemic will be over by the summer.  What else can they say, given their income mostly depends on persuading the public to buy shares?

But anyone on Main Street knows that it will probably take a least a year to develop (a) an effective treatment for people who get the virus and (b) an affordable vaccine. And there is no guarantee of success in either area.

In the meantime, the chemical industry is performing its usual function of acting as a leading indicator for the global economy, as the charts from I.C.I.S. confirm:

  • They show how prices have suddenly collapsed in Europe for 3 major petrochemicals
  • Ethylene, used for polythene, PET and other major plastics, has dived from $750/t to $250/t
  • Butadiene, used for tyre manufacture, has seen prices fall from $600/t to $50/t
  • Prices for benzene, used in a wide variety of products, have fallen from over $800/t to $200/t

None of us have ever seen anything like this happen before.

One immediate result is that local supply has become much more attractive than long-distance imports. Why take the risk of buying from another continent, when prices can move so quickly and so dramatically?  And why take the risk of relying on a faraway supplier, who may well take weeks to ship product, as and when demand eventually picks up.

Clearly, therefore, it is unlikely that the world will return to “business as usual” whenever the coronavirus pandemic finally ends. When that occurs, the chemicals industry will, as usual, be in the forefront of the paradigm shift.

We are starting to learn, or relearn, that we need to do more with less. The days of globalization are behind us, and instead sustainability on a local basis is now the key driver for business.

Some argue that cheap oil will undermine the case for recycled plastics, but that is to misunderstand the nature and power of the shift now underway. After all, the Stone Age didn’t end because the world ran out of stones, and the Coal Age is already ending with coal still left in the ground. The same will be true of oil and gas as the world transitions to renewables.

The signs of the paradigm shift are all around us, most notably with the moves by brand owners to respond to consumer pressure and step up their use of recycled plastics. As a landmark study by the University of Georgia highlighted in 2018, the debate has evolved to focus on the sheer waste involved in basing the business on virgin feedstocks. As the study shows:

  • The world has produced 8.3bn tonnes of plastic over the past 60 years.
  • Almost all of it, 91%, has been thrown away, never to be used again.
  • Even worse, this waste hasn’t simply disappeared, as plastic takes around 400 years to degrade.
  • Instead, the study finds, 79% is filling up landfills or littering the environment and “at some point, much of it ends up in the oceans, the final sink.”

Nobody is claiming that this waste was created deliberately. Nobody is claiming that plastics aren’t incredibly useful — the Covid-19 pandemic has proved that to a new generation. The issue is simply that we cannot afford to keep throwing away such a valuable material.

  • Recycling is the obvious next step, where communities replace waste sites with resource centers where plastic from the local community is recycled back into usable products for resale.
  • These resource centers will no doubt include 3D printing, which can dramatically reduce the volume of plastic needed to make a finished product. It operates on a very efficient “additive basis,” only using the volume needed and producing little waste.

Essentially the economic crisis created by the pandemic will likely force us to adopt the principles of the circular economy, as the Ellen MacArthur Foundation describes them:

“Underpinned by a transition to renewable energy sources, the circular model builds economic, natural and social capital.”

The petrochemicals and plastic industry is now in crisis, along with many other major industries. Bankruptcies are inevitable, as I have argued here since early February, when trying to highlight the risks. Unfortunately, as in 2008, few believed me.

It is not too late, however, for companies who wish to survive the crisis. As well as managing through the crisis, they need to focus on using their skills and expertise to develop service-based businesses.

The need is to provide sustainable solutions for people’s needs in the fields of mobility, packaging and other essential areas.  The good news is that they will have a very profitable and secure future ahead of them.