China's ban on single-use plastics 'a big deal for the global polymers business'

China's Jan. 19 announcement of a sweeping, phased-in ban on many single-use plastics not only caught the attention of environmental campaigners, but also it's likely to have a significant impact on polyethylene markets globally.

The new policy from Beijing sets up bans on disposable plastics, including nondegradable bags, straws and cutlery to be phased in over five years. The wide-ranging policy includes limits on plastic microbeads in daily use goods, as well as rules for specific sectors, like getting rid of disposable plastics in hotels by 2022 and a phased-in ban on plastic packaging in China's popular express delivery services starting in 2022 in major cities and provinces and expanded nationwide by 2025.

Analysts said the broad initiative is also likely to impact use of recycled content in products in China and dovetails with Beijing's plans to limit imports of plastic scrap under its National Sword policy and to modernize the country's inefficient domestic recycling industry.

Gerard Selvaggio, vice president at Blue Clover Polymer Solutions in Princeton, N.J., said that his firm "was surprised to see how quickly the Chinese government is looking to ban certain single-use bags, straws and cutlery."

"For the ban to take effect in just two years for certain products, that's far quicker than most corporate guidelines to increase their recycled content," he added. "This ban should have a negative effect on global PE average margins over the next several years. Today, U.S. producers are being helped by very cheap natural gas and ethane pricing, while Asian crackers are having to cut back operating rates due to negative margins on naphtha to PE."

Wood Mackenzie senior consultant William Liu projected that the regulation would reduce plastic consumption.

"Polyethylene consumption will be impacted as it is the main [feedstock] to produce bags and packaging films," said Liu, who added that as the ban rolls out to more cities and substitute materials gain traction, China's use of polyethylene will be further impacted.

China is the largest PE importer in the world. The country consumed more than 33 million metric tons of polyethylene in 2019 — 40 percent of it imported from producers in the Middle East and other Asian countries.

China accounted for about 12 percent of U.S. PE exports in 2018, according to Polyolefins Market Weekly. That number was expected to drop slightly in 2019 because of tariffs put in place in the U.S.-China trade war.

The efficiency of the directive, according to Liu, will depend on many factors, such as the development of substitute materials.

"At present, compared with materials such as paper, glass, wood and metal, plastic has many advantages in daily use, such as being lightweight, easy to process, convenient and, most of all, it is price competitive," he added.

While it's hard to predict how much consumption could take a hit, analysts said China's policy comes at a challenging time for the PE industry.

Phil Karig, managing director of Mathelin Bay Associates in St. Louis, said that depending upon exactly how much resin consumption is eventually reduced from the policy, there are likely to be dislocations in global resin markets just as worldwide economic growth is slowing and as new capacity, especially for PE, continues to come on line.

He added that through the first half of 2019, U.S. exports of HDPE to China were down more than 50 percent and LDPE and LLDPE exports were starting to slow in response to ongoing tariff negotiations.

As a result, China bought more resin from the Middle East and elsewhere to replace U.S. resin, while U.S. producers ramped up exports to Europe and other areas during 2019 to make up for slowing sales to China, Karig said. China also bought more resin from companies such as ExxonMobil that could supply the country from their non-U.S. locations, he said.

"The problem going forward is that non-U.S. resin suppliers to China will also have to start looking for new export markets to replace any lost sales," he said. "U.S. producers have strong raw materials cost positions, but China's ban is likely to set off a game of musical chairs as everyone scrambles to make up for reduced demand in the world's premier resin consuming country."

Beijing's new single-use plastics policy, announced by the National Development and Reform Commission and the Ministry of Ecology and Environment, is part of an attempt to better control plastic waste and its negative impact on water supplies in particular, said John Richardson, a senior consultant for Asia with the market intelligence firm ICIS.

"The problem is that plastic rubbish is adding to China's shortage of potable water, as of course lots of the plastic rubbish is ending up in rivers, contaminating the water supply," he said. "So there is no real surprise that the bans have been announced."

China is also moving to modernize its inefficient domestic recycling industry as a way to reduce demand for imported polymers, potentially adding to the reduction in demand for virgin polymers that seems likely from the Jan. 19 announcement, he said.

"China is the biggest polymer import market in the world, especially for polyethylene, around half of the demand for which is in single-use plastics," Richardson said. "So, whatever happens in China is a big deal for the global polymers business.

"It is a very reasonable scenario that China will lead the world in banning single-use plastics that have no real societal value, whilst also creating a modern, state-of-the-art recycling industry that competes with the very best in the world," he said. "The implications both for virgin PE demand in China and for the amount of that demand which is met by recycled production are likely to be very significant."

Another analyst, Esteban Sagel, principal of Chemical and Polymer Market Consultants in Houston, said he believes the industry has not been able to effectively get its message out.

"I believe what we are seeing is the industry losing the narrative on the environmental impact of plastics," he said. "We have been unable to convince consumers — and in this case, governments — of how plastics have a lower environmental impact than alternative materials."

The Chinese action, according to Sagel, is the culmination of a process that started as far back as 2001, when Ireland, Australia and Bangladesh started taxing the use of PE bags. Beijing's ban also builds on narrower policies in China, like 2008 bans on thin plastic retail bags.

"The advent of social media and the powerful images of wildlife being impacted by plastic detritus left in the environment simply accelerated the process," Sagel said. "I believe we are going to see a fundamental shift in consumer behavior, with plastics taking the brunt of the impact.

"Unless the industry takes decisive action well beyond what's currently being proposed and engages the other stakeholders like consumers and governments in this issue, further regulations will be imposed that will drive down demand growth rates and imperil the future of polymers as we have known them," he said.

Plastics News Europe contributed to this story.