We've all heard it so many times that we can no longer muster the effort to roll our eyes at it. But what if I told you that the tritest movie line in the history of the plastics industry (and maybe even in the history of movies) is once again relevant?
That's the thrust of the story that was reported recently in The Wall Street Journal about the pending plastics renaissance in America. In case you missed the article, just the headline and the sub-head alone are worth savoring: "The Shale Revolution's Staggering Impact in Just One Word: Plastics. Petrochemicals, once simply a cheap byproduct, are powering a U.S. manufacturing boom and export bonanza."
Now before you Google this article and read it on your own, do yourself a favor and read this headline once again, this time out loud. When was the last time you heard words like "staggering impact" and "manufacturing boom" and "export bonanza" used to describe the future prospects of the U.S. plastics industry? My guess it was probably about 1967, the year "The Graduate" was released.
There are a few salient facts that bear mentioning here. First, most of you are already aware of the surge in resin capacity that is expected to come online in the near future. This surge is part of a massive wave of investment in the chemical industry as a whole. According to the article, "expenditures on chemical plants alone accounted for half of all capital investment in U.S. manufacturing" last year.
I recognize that this spurt in expenditures is coming off a cyclical low-point because the chemical industry had suffered from under-investment for many years. The prevailing thinking was that growth in the U.S. economy was euphemistically described as "mature." The idea was to build chemical plants in the Middle East and then ship the product to China. But that line of reasoning has changed due to the abundant supply of natural gas.
This spike in investment in new chemical plants corresponds with a record level of M&A activity in recent years. ICIS Chemical Business reports that "global chemical mergers and acquisitions will hit a record level" as a number of mega mergers close in 2017.
There are strong economic reasons spurring this activity. Larger, more efficient processing operations will allow petrochemical producers to take advantage of the huge amounts of natural gas that are being produced in the U.S. These efficiencies of scale will enable producers to make a lot more product at a substantially lower cost per unit. The problems now become finding a market for this additional product, and then figuring out a way to transport their products to this market. As far as finding the market is concerned, most of them are taking aim at the developing economies in Mexico and Latin America.