Looking for the post-COVID consumer

COVID-19 has affected the buying habits of consumers around the world, changing how they purchase many products, including those based on plastics.

These changes were covered Aug. 11 on "The Post-COVID Consumer," a webinar hosted by Houston-based data firm ICIS.

At the macroeconomic level, global GDP is expected to decline 2.6 percent in 2020 as a result of COVID-related losses, according to Neil Burns, a consultant based in Freehold, N.J. U.S. GDP is on track to be down just a little more than 6 percent, he said, with GDP drops in Europe ranging from 6-10 percent.

Demand for cleaning and hygiene products should be up almost 10 percent for the year, with purchases of luxury items down, Burns added. The "simplification and localization" of global supply chains in response to COVID-19 also could make it more difficult for consumer products companies to develop new products, he said.

The trend toward sustainable products is expected to continue in spite of the challenges of COVID-19, Burns said, especially in western markets.

In commodity plastics, Chemical Data Inc. Vice President Alex Lidback said that resin makers "are fortunate" that a large portion of their sales are into nondurables, since sales into durables, including automotive, are down as a result of the pandemic.

By comparison, he added, demand for food packaging and bottled water has climbed. "The grocery chain is strong," Lidback said. ICIS acquired Chemical Data earlier this year.

Prices for Brent crude oil — which Lidback described as "a price-setting mechanism for plastics and chemicals around the world" — dropped to less than $20 per barrel earlier this year during the pandemic but have rebounded to $45 as of Aug. 13 and should be back to around $60 by the end of 2021, he said.

Polyethylene demand in the U.S. and Canada is recovering from lows earlier in the year. Lidback said new PE capacity additions will need to rely on export sales.

The region boosted PE capacity by just over 12 percent from 2015-19 and will add almost 10 percent from 2019-22, fueled by the availability of low-priced shale oil and gas feedstock. But domestic PE demand grew only 0.5 percent and 1.2 percent in those same time periods.

"There's 20 billion pounds of excess [PE] capacity based on domestic demand growth," Lidback said. "The new capacity was built for exporting.

"This has been the plan all along. The only way to sustain high utilization rates is exporting," Lidback added.

PE exports from North America began to increase in 2015 and have trended higher every year since then. By 2022, more than 40 percent of PE made in North America will be exported. "When you export this much, the international market has a major impact on domestic prices," Lidback said.

The U.S./Canadian PET bottle resin market also has become very tight in 2020, as COVID-related packaging demand has surged and less import material is available because of recent anti-dumping actions.

A potential new virgin PET plant in Corpus Christi, Texas, also has been delayed until the cost of the project can be justified, Lidback said. As a result of these factors, North American PET operating rates should be elevated at least through 2023, he added. The availability of recycled PET also has been tight, as bottle collection has been hindered by the pandemic.

 

The North American PVC resin market has been "better than expected" in 2020, according to Lidback, as more people have worked from home and completed DIY projects. North American PVC generates more than half of its sales from the building and construction market.

Low interest rates also have helped home starts and remodeling activity, Lidback said. People working from home also could be leaving cities for suburbs to find larger homes that use more PVC and other more materials, he added.

Overall, most commodity plastics will see upward pricing pressure through late 2020, he added, with pressure on PET continuing beyond that point.

Recycled PET markets worldwide also have been affected by the 2020 pandemic, according to ICIS senior analyst Helen McGeough. Uncontrolled factors like oil prices and consumer preferences for sustainable products also have impacted recycling markets this year.

"Supermarkets want recycled material in all of their packaging," McGeough said. Global brands have signed the Ellen MacArthur [sustainability] pledge and brand pledges are going beyond regulatory requirements."

At the same time, low oil prices have increased the spread between virgin and recycled PET prices, making food-grade recycled PET more of a premium product.

"Sustainability goals are supporting high [recycled PET] prices," McGeough said.

"The switch from virgin [PET] prices being higher in 2018-19 happened because of the global commitment to sustainability," she added. "Global brands can't take action in one area and not in another."

Recycled PET collection growth in Europe hasn't kept up with demand, increasing only 3 percent in 2019-20 instead of the 9 percent that McGeough said was needed to meet demand growth.

"There's been limited investment in collection and sorting systems, and that's constricted growth in collection volumes and quality," she added. "There's not enough to meet goals, and that's been affected by the pandemic in worker furloughs and not being able to get not enough labor."

In the U.S., PET bottle collection rates haven't changed much in recent years, coming in at around 30 percent from 2010-18. By comparison, Europe's PET bottle recycling rate was 63 percent in 2018.

"There isn't sufficient feedstock available [in the U.S.] for a market with such a high consumption rate," McGeough said.

2020 "was expected to be strong year for recycling, especially in Europe," she added. Some global investment in recycling now might stall as the viability of the recycling business "is reassessed by some parties in the chain."

But consumer interest in sustainability remains high. "Consumers haven't stepped away and they'll come back in force next year," McGeough said. "There's real backing and real commitment to making change for the better."

In the broader economy, consumers in G20 countries are recovering from pandemic shutdowns. The U.S., United Kingdom and Canada have seen a gradual increase in food store and drug store visits and some rises in restaurant bookings in recent months, according to Richard Holt, global cities research head with research firm Oxford Economics in Oxford, England.

The U.S. has become more active in many areas, including employment, production and mobility. Some worries remain about increases in COVID-19 cases in some states. Holt added there was "cautious optimism" about COVID rates in the U.S., although "management of the recovery from the government hasn't been strong."

Global GDP recovery could be W-shaped, Holt said, if consumer activity declines again later this year. But he added that there's been "no permanent loss of confidence" among global consumers.

U.S. spending on vacations, hotels and vehicle purchases were down in 2020 but could rebound in 2021, he added. On the opposite side, spending in areas such as medical, alcohol and food that have been up this year could decline next year.

Josh McBain, consultancy director with the Foresight Factory consulting firm in London, identified four consumer trends that have increased in importance in the pandemic year of 2020. Those trends are building resilience, presence-free living, holistic well-being and sustainable living.

The building resilience trend has seen more people closely handling their personal finances and consumer brands combining for joint discounts. "Presence-free" living has included a move away from physical to virtual actions in many areas, including social, commercial and shopping.

Holistic well-being has increased a focus on meditation and mindfulness, including sleep and health. Sustainable living has shown more concern about the environment, even if doing so lessens economic growth.

"People want to get back to a normal life," McBain said. "We should see a wider return to normal over the next two years."