Report: Plastics firms face big risks over waste issues

Plastic packaging companies Amcor Ltd., Berry Global Group Inc., Winpak Ltd. and FP Corp. are among those potentially carrying the most business risk over laws and regulations aimed at taming plastic waste, according to a new analysis by investment bank Jefferies Financial Group.

The report from the New York-based financial firm takes a look at the less understood corporate impact, and it acknowledges a lot of uncertainty over how public worries about waste, recycling and ocean pollution will ultimately play out for companies. But it argues that change is coming.

"In our view, the plastics crisis has the potential to impact companies in a range of different ways," the report said. "It is increasingly clear that the status quo won't continue for much longer and a multitude of varying scenarios are possible."

The 70-page report says bans and taxes are the most likely scenario and estimates they could, over time, push annual growth in the plastic packaging industry from 3-5 percent now to 1 percent or less. It says "hardline bans" and taxes on single-use plastics in that scenario would start around 2023 and extend globally by 2030.

"Jefferies has modeled the medium-term outlook for plastics, and the problem doesn't appear to be improving — it's actually getting worse," it said. "We believe that while the industry is attempting to find solutions, little headway is being made.

"Even if recycling rates were to rise rapidly and reach 50 percent globally, there would still be an environmental issue from leakage," the firm said. "Therefore, the solution will likely involve a combination of changing personal consumption habits and sweeping policy changes."

The report also looks at financial risks to companies in the resin sector and mentions Asia-based firms Indorama Ventures, Formosa Plastics and Sinopec Shanghai as having particular risk because 50 percent or more of each firm's revenues are tied to plastic and more than 25 percent are linked to packaging.

"Sectors that are most resilient include alternative packaging and waste management," it said. "Sectors most at risk are plastic packaging and consumer goods."

Jefferies argued that substantial parts of business for packaging makers Berry, based in Evansville, Ind.; FP of Fukuyama, Japan; and Winnipeg, Manitoba-based Winpak are exposed to plastics concerns and it said Melbourne, Australia-based Amcor is heavily exposed.

"[Amcor] is among the world's largest suppliers of plastic-based flexible packaging and containers," Jefferies said. "We estimate that as much as 85 percent of Amcor's group revenue could be tied to the plastics supply chain."

The investment bank outlined other scenarios that could mitigate a ban and tax-heavy future, such as significantly more recycling, both with traditional mechanical processes and emerging chemical recycling technologies. As well, it includes a scenario where consumers significantly move away from single-use packaging or prefer packaging in nonplastic materials.

It suggested some concerns over recycling as a complete solution, although it acknowledged that some analysts and companies argue significant gains can be made.

It noted, for example, questions around chemical recycling that breaks polymers back down into their building blocks.

"Currently, there is an active debate as to how scalable these technologies are and whether the energy required to break the bonds is actually more than what is returned," the report said. "As it appears, the economics of chemical recycling don't currently stack up, and subsidies may be required to help this small industry reach scale."

As well, the report argued that a scenario that increases traditional mechanical recycling could have downsides to virgin resin makers, if consumer product companies are able to make good on their targets such as having 50 percent of their single-use plastic come from recycled materials by 2025 and 100 percent by 2030.

It estimated that could decrease compounded annual growth rate for virgin plastic from 4-5 percent to 2 percent by 2030.

"We believe that plastic resin used in packaging and specifically, single-use packaging, is most at risk in terms of future demand," it said. "If bans and other policies get rolled out globally, investors will need to reset expectations for plastic demand, where growth will lower or even contract.

"Depending on the design of resin production facilities, producers may be able to shift capacity towards producing other types of resin," it said.

In a bit of futuristic scenario projecting, the report envisions that consumer product companies could miss their 2025 goals for more sustainable packaging under the New Plastics Economy project of the Ellen MacArthur Foundation "but extend them to 2030 and then meet or even exceed targets."

In that scenario, it estimates that 10 percent of global resin demand could be met with recycled materials.

The report notes that plastic packaging often has lower carbon footprints than alternatives like glass or metals and argues that packaging can significantly reduce food waste. But it also noted that those studies sometimes do not quantify negatives of plastic waste in the oceans or food chains.

It also noted that rivers in Asia account for a large part of the plastic waste in the ocean, offering details on the eight most polluted rivers. But it also notes that the United States generates waste well above its share, with about 4 percent of world population creating 12 percent of global municipal solid waste.

"What's clear to us is what is needed to reduce plastic pollution into the environment either via landfill or other means is a reduction in demand for packaging combined with a significant jump up in recycling rates globally," it said.