Speaker 1: Hello, and welcome to another episode of the Odd Thoughts Podcast.
Speaker 1: I'm Tracy Alloway and I'm Joe. Wasn't all Joe? Do
Speaker 1: you know what a nerdle is? No? Is that like
Speaker 1: something related to wordle? Uh? No, sounds like a nerdier.
Speaker 1: A nerdle is. It's like that tiny little pellet or
Speaker 1: bead of plastic which is used to make bigger plastic items.
Speaker 1: I had no idea. Yeah, it's It's one of my
Speaker 1: favorite words, and this episode is really just an excuse
Speaker 1: for me to say nerdle several times. But today we
Speaker 1: are going to be talking about the plastics market, which
Speaker 1: I kind of think is an underappreciated thing in global
Speaker 1: supply chains but also potentially in inflation. Yeah, it's super
Speaker 1: interesting because plastics are obviously huge there in everything. They
Speaker 1: package everything there omni president. But I feel like we
Speaker 1: don't actually talk about plastics very much. I don't We've
Speaker 1: never done a plastics episode, And by and large, look
Speaker 1: when you read the news, you read about commodities or
Speaker 1: things like that. I don't think there's actually much discussion
Speaker 1: about the plastics industry, right, So I wrote a tiny
Speaker 1: bit about it in one It was based off of
Speaker 1: this great Bank of America note talking about how there
Speaker 1: was this huge arbitrage opportunity that had opened up between
Speaker 1: US and European and Asian plastics markets, and the price
Speaker 1: of plastic at the time was just going absolutely nuts
Speaker 1: like everything at that time. Since then, it has come
Speaker 1: crashing down. So we flipped from record high plastic prices too,
Speaker 1: I think a two year low. So it's kind of
Speaker 1: similar to what we've seen with a lot of commodities,
Speaker 1: a lot of different types of consumer goods, which means
Speaker 1: that we need to check in on what's going on
Speaker 1: with the market. Let's do it, because, like I said,
Speaker 1: I'm kind of starting from scratch. I don't know anything.
Speaker 1: I don't know what a nerdle is, but more importantly,
Speaker 1: I really don't know anything about it, about the plastics
Speaker 1: industry at all, which is kind of indefensible for such
Speaker 1: a such an important part of our lives. We'll just
Speaker 1: keep saying nerdles. Okay, Well, we have the perfect guest
Speaker 1: to discuss this. We're going to be speaking with the
Speaker 1: author of that analyst report that I just mentioned. We're
Speaker 1: going to be speaking with Warren Russell. He is a
Speaker 1: commodity strategist at Bank of America, and he's going to
Speaker 1: give us the lowdown on neurdles and what's going on
Speaker 1: in the plastic market right now. So Warren, thank you
Speaker 1: so much for coming on all thoughts, thanks for having me.
Speaker 1: So maybe just to begin with a very basic question,
Speaker 1: but when we talk about the price of plastic, what
Speaker 1: are the sort of ingredients or factors that go into that. Sure,
Speaker 1: so you know, the primary feedstock for this comes from oil. Um,
Speaker 1: So when we think about the fundamental pricing of plastic,
Speaker 1: it comes down to a large degree with what's happening
Speaker 1: with oil. But there are a lot of other nuances
Speaker 1: as well with regards to capacity within the plastic space, um,
Speaker 1: the ability to meet demand. So is there enough capacity
Speaker 1: to meet demand? Uh? And obviously during the last few
Speaker 1: years we've had a bit of a challenge doing that,
Speaker 1: and so you've seen some disconnects in price between what
Speaker 1: oil is doing and what some of the plastics are doing.
Speaker 1: So talk to us a little bit more. First of all, um,
Speaker 1: within the broader world of petroleum consumption. You know, we
Speaker 1: think about cars, think about jet fuel. How big is
Speaker 1: plastics and then talk to us about that refining component. Again,
Speaker 1: we talk about gasoline refining, and we talk about diesel
Speaker 1: and all that, But in terms of the process for
Speaker 1: turning oil petroleum into plastics, what do we talk about
Speaker 1: in terms of capacity, spare capacity, how tights? That got sure? So, UM,
Speaker 1: I guess I should just start with where this is
Speaker 1: all coming from. So when when you drill a well, right,
Speaker 1: you've got most people just think of gas in oil,
Speaker 1: but you actually have a broad spectrum of what we
Speaker 1: call hydrocarbons coming out of the ground. And so you'll
Speaker 1: have the very heavy, viscous stuff that looks like it
Speaker 1: feels like peanut butter. And then you've got the very
Speaker 1: light stuff, which is pretty much natural gas or methane UM.
Speaker 1: And in between you've got uh, just just after methane.
Speaker 1: We call them hydrocarbon chain. So you start with methane
Speaker 1: with with one C h t C is ethane, three
Speaker 1: C is propane uh and and up the stream. UH.
Speaker 1: The plastics come from the light ends of that. So
Speaker 1: you you drill a well, you're producing oil, you're producing
Speaker 1: what we call wet gas. UH. That wet gas is
Speaker 1: separate out into different streams. So you're gonna split out
Speaker 1: most of the natural gas. There'll be some ethane in that,
Speaker 1: but it recovers some methane UH that in the US
Speaker 1: is used heavily in our pet com industry. You're also
Speaker 1: producing propane and butane uh and what we call c
Speaker 1: fives as well. You you know, that is a large
Speaker 1: component of of the feedstock for for the pet com sector.
Speaker 1: You also producing some of these feedstock from the refinery
Speaker 1: to so you know you can pull those other streams.
Speaker 1: Naptha to a large degree comes from refining to. So
Speaker 1: can you talk to us about the types of plastics,
Speaker 1: because there are a bunch of different types, but they
Speaker 1: all kind of sound similar and have similar acronyms, which
Speaker 1: is a little confusing. No, I think we have uh.
Speaker 1: You know, a large focus is on what we call
Speaker 1: the poly released into our market's polyethylene, polypropylene. So you
Speaker 1: have these acronyms like HDPE, which is high density polyethylene.
Speaker 1: You've got low density polyethylene LDPE. You've got linear low
Speaker 1: density uh that sort of rounds out the polyethylene space.
Speaker 1: Then you've got polypropylene, which you know that's a polymer
Speaker 1: version of of propylene, which you can talk about further.
Speaker 1: And then you've got p ET, which is what we
Speaker 1: see a lot of plastic bottles made out of UM
Speaker 1: that is polyethylene tarith alley um. That's not how I
Speaker 1: would have pronounced that I learned something new. Okay, Well,
Speaker 1: well I think you've got PBC um, which I think
Speaker 1: most people are familiar with the polyvinyl chloride um. What
Speaker 1: else polystyrene? Yeah, because I mean and then there's all
Speaker 1: sorts of um UM. And so just to be clear,
Speaker 1: all of these different acronyms, different pollies, etcetera, it's just
Speaker 1: slightly different purposes. So there's you know, you might have
Speaker 1: a plastic bottle for like a diet coke or something,
Speaker 1: and then like I don't know what would be like
Speaker 1: the clamshell plastic like a baker. Yeah, I mean you
Speaker 1: can make that UM from one of the blow mo
Speaker 1: old poly ethylene type. This would this would be a
Speaker 1: good game to like just throw out items about I
Speaker 1: think that there are what about like like my daughter's toys,
Speaker 1: like a dollhouse or something made out of place. I
Speaker 1: guess it depends, but you know you can you can
Speaker 1: pull in all sorts of things. For example, with polypropylene,
Speaker 1: you know that goes into UM. Automotives that goes into
Speaker 1: what we call the white glove, big ticket items that
Speaker 1: consume these plastics that are primarily used in packaging. So you, um,
Speaker 1: the polyethylene polypropylene UM PET are largely consumed by plastic packaging,
Speaker 1: maybe more UM, and then you sort of branch out
Speaker 1: into like PVC, which is heavily used in construction. So
Speaker 1: the okay, but whether it's h d p E or
Speaker 1: ld P E or PET or PVC or whatever like,
Speaker 1: it comes from hydrocarbons in the ground and then it
Speaker 1: gets refined into plastics and then presumably there's like a
Speaker 1: storage and transportation cost on top of that. Talk to
Speaker 1: us about what happened in with plastics prices, because this
Speaker 1: is where I was first introduced to your work. Well,
Speaker 1: plastics really going gangbusters and lots of interesting things happening
Speaker 1: in the market. Yeah, I mean there were a lot
Speaker 1: of things happening sort of all at once. The point
Speaker 1: that I was making earlier on UM capacity became an
Speaker 1: issue where uh, the U S sector specifically is susceptible
Speaker 1: to storms. UM, So we had hurricanes which can take
Speaker 1: down these these plants. Uh, we had the deep freeze. Uh.
Speaker 1: If you remember in one UH that also took down
Speaker 1: plans for a long time, and um, you know that
Speaker 1: really the market was already sort of tight into that um,
Speaker 1: meaning we didn't have a whole lot of incremental supply
Speaker 1: at that time, and these uh, these facilities went down.
Speaker 1: The US market got very tight um at the same
Speaker 1: time as the government was stimulating and people were spending
Speaker 1: their checks on everything plastic um and so you know,
Speaker 1: that was one thing that really, um, you know, helped
Speaker 1: drive plastics up to these levels that we haven't seen.
Speaker 1: You know, those plastic prices were trading at levels where
Speaker 1: we would have expected them with oil over a hundred
Speaker 1: dollars barrel at least. So you know, in a way
Speaker 1: it feels like old news, but maybe it's not. I
Speaker 1: don't think we actually ever did an episode where we
Speaker 1: talked about the supply chain impacts of that Texas freeze
Speaker 1: last March, but it seems like it has come up
Speaker 1: a number of times in reading things like I think
Speaker 1: there was something with like uh installation for like homes
Speaker 1: got really disrupted. Can you talk about like how big
Speaker 1: of a deal was that? Because I actually think it
Speaker 1: might be kind of relevant now and we think about normalization.
Speaker 1: We think inflation as sort of like one of the
Speaker 1: underdiscussed supply chain disruptions of one of the last year.
Speaker 1: How long lasting were the impacts of that Texas free
Speaker 1: I mean, it took a long in the pet camp space.
Speaker 1: It took a while for the US market to really
Speaker 1: several months to to start to normalize even into and
Speaker 1: then we you you know, in the US, we do
Speaker 1: have a lot of capacity has been coming online over
Speaker 1: the years. We've never really managed to run it all
Speaker 1: at full We do struggle to balance the exports and
Speaker 1: the domestic consumption um but it took a while to
Speaker 1: get back up. And now in the last just in
Speaker 1: the last few months, we've gotten up to sort of
Speaker 1: record high inventories of PE and that's come down a
Speaker 1: little bit in the lass two months, but still is
Speaker 1: at very high level. So it did take a while.
Speaker 1: You know. Another dynamic that people may or may not
Speaker 1: have mentioned, is the the end consumer or or the
Speaker 1: company that's making the bottles or um any of the
Speaker 1: material with those plastic pellets, was you know, in an
Speaker 1: in an ocrap moment where they're realizing, maybe we should
Speaker 1: hold more of this on hand, right Inventories exactly, so
Speaker 1: you had sort of justin tyn in inventory situation, sort
Speaker 1: of globally moving more towards a just in case. Uh.
Speaker 1: The unfortunate thing about that was that the just in
Speaker 1: case time came when they really wasn't whole lot of supplies,
Speaker 1: so people were sort of disregard price and just buying
Speaker 1: at all costs. UM. So sounds familiar. So just going
Speaker 1: back to the market structure for plastics, you know, you
Speaker 1: were writing about this arbitrage opportunity um, and it was
Speaker 1: a big arbitrage opportunity, but it was big because it
Speaker 1: was actually difficult to do UM. And it kind of
Speaker 1: had to do with the different market prices between the US, Europe,
Speaker 1: and Asia, which kind of begs the question of is
Speaker 1: there no like global standard for plastics prices in the
Speaker 1: same way that we have like Brent versus w T
Speaker 1: I right now. I mean, this is very regional um
Speaker 1: rarey regional pricing. There's also pricing that you don't really
Speaker 1: see uh that transparently either. Um. There's a spot market
Speaker 1: and then there's a contract market. Uh. And so you know,
Speaker 1: a large chunk of the plastics volume in the US
Speaker 1: will be on contract and that's a price that's um
Speaker 1: agreed upon between the producers of the plastic and the
Speaker 1: consumers of the plastic. And there's obviously a lot of
Speaker 1: give and take there, and sometimes there's questions around why
Speaker 1: prices are what they are based on what you think
Speaker 1: are the broader fundamentals, but it's very regionalized from that
Speaker 1: regard um. It's also, uh, you know, it's not like
Speaker 1: we have the same fungibility that you do with oil. Um.
Speaker 1: The consumers of plastic maybe set up on a rail
Speaker 1: line or um, you know, next to a facility, and
Speaker 1: so there's um synergies there that are hard to arb
Speaker 1: away UM. So you can't have like a pipeline for
Speaker 1: neurtles just like yeah, I was gonna because like right,
Speaker 1: with oil, like there are a diffusion of prices, but
Speaker 1: it's kind of like they all moved together, whereas we
Speaker 1: know that with natural gas it's not like that at all.
Speaker 1: You can just have completely different movements in different directions.
Speaker 1: And the reason is obviously the sort of fungibility and
Speaker 1: this sort of like the nature of the global distribution
Speaker 1: network is much more fragmented. So it's classics. What does
Speaker 1: that look like such that you can have such persistent
Speaker 1: wide variations. So I think the issue they had in
Speaker 1: one was obviously the freight congestion. So um the wide
Speaker 1: arms on paper looked wide partly because freight was so high. UM.
Speaker 1: I think another issue that you had there is that, again,
Speaker 1: if I'm set up to buy pellets a certain way, UM,
Speaker 1: I may not actually be able to take advantage of
Speaker 1: inbound pellets from the global market. And don't get me wrong,
Speaker 1: this market is is there's a lot of trade. But
Speaker 1: if you're talking about incremental incremental um, uh buying. If
Speaker 1: you need, for example, to buy poly ethylene from the
Speaker 1: US Gulf Coast and you're buying it and uh, what
Speaker 1: call super sacks which are basically these polypropylene sacks that
Speaker 1: um you put those in a container ship and send them.
Speaker 1: Are they full of nerdles or something else? Just to
Speaker 1: be clear in in sort of a quote unquote normal time, like,
Speaker 1: is there more of a one global price for plastic
Speaker 1: or is it always going to be this kind of
Speaker 1: thing where it's not like oil In terms of the spreads, No,
Speaker 1: I think that you will definitely see the I mean
Speaker 1: you are seeing the arts come in. UM. So the
Speaker 1: issue that we have right now, is that this market
Speaker 1: is over capacity. UM. We've been talking about a market
Speaker 1: that looked like it should have been an over over
Speaker 1: supply since maybe was sort of one were these years
Speaker 1: where you had UM sort of extra demand for goods,
Speaker 1: which you know, when you line up demand for poly
Speaker 1: athlene and polypropylene UM, they typically track, you know, directionally
Speaker 1: with GDP. UH, those those UM demand for those plastics
Speaker 1: increased or was flat when GDP was down what three
Speaker 1: point three or whatever percent it was UM, and so
Speaker 1: you know that was that was sort of a one
Speaker 1: off dynamic. UM. Now I think we're starting to come
Speaker 1: full cycle on economic expectations with a downturn expected for
Speaker 1: next year. UM. You have with with that UH China reopening.
Speaker 1: Arguably more broadly, you have decongestion in the global UM
Speaker 1: supply chain, so you don't have quite the same congestion
Speaker 1: at ports and you know, the box UH, the ability
Speaker 1: to procure containers was a big issue back two years ago.
Speaker 1: That's definitely UM not something you hear as much of
Speaker 1: a problem now. So sort of decongesting all of that
Speaker 1: should help facilitate narrower spreads between the regions and so
Speaker 1: and you are starting to see. You know, European prices
Speaker 1: are are still high, but um, people are moving volumes
Speaker 1: into Europe to try to capitalize on that. So talk
Speaker 1: to us about the capacity outlook then, because you've mentioned
Speaker 1: that a number of times, and I remember when I
Speaker 1: was based in Hong Kong, there were some stories about
Speaker 1: China purposely building out it's um polypropylene capacity and and
Speaker 1: things like that. Is that something that's going to impact
Speaker 1: the market. I think that's something that has been catching
Speaker 1: up over the last few years and is now starting
Speaker 1: to rear its head. I think when you look at
Speaker 1: both polly athlene and polypropylene, capacity growth still looks fairly
Speaker 1: robust over the next year or two. UM. So you
Speaker 1: sort of juxtapose that with what we expect to happen
Speaker 1: with GDP and actual demand now that the stimulus checks
Speaker 1: are fizzling out, people are not buying as much online. UM,
Speaker 1: that demand for plastics is sort of like potentially could
Speaker 1: come in a little worse uh than than normal trend
Speaker 1: at a time when capacity is is ramping up. So
Speaker 1: you know, this is a situation where, um, you may
Speaker 1: be in h uh an environment where capacity rationalization is
Speaker 1: required to help sort of short show up the balances.
Speaker 1: So just on that note, one of one of the
Speaker 1: PET theories PET, yeah, thank you. One of the PET
Speaker 1: theories about plastics is that it has been this underappreciated
Speaker 1: force in um widespread inflation, because plastic packaging goes into
Speaker 1: almost everything, and you know, if if the dial on
Speaker 1: plastics is moving up, like relative to the price of
Speaker 1: the good, it can be quite significant. Is that something
Speaker 1: that you're aware of or that you would like buy
Speaker 1: into it as a commodity strategist. Yeah, I definitely buy
Speaker 1: into that. I think it's all relative. Though, if you're
Speaker 1: talking about a low value product like a bottle of water, right, um,
Speaker 1: you know you're going to see a lot more exactly
Speaker 1: the plastic it was basically yeah, yeah, I mean I
Speaker 1: don't know what the margins look like for selling plastic
Speaker 1: water bottles, but arguably the plastic is a much larger
Speaker 1: input costs there than it would be for let's say
Speaker 1: some sort of healthcare product that's something that maybe cost
Speaker 1: seventy dollars a bottle. Um, you know, the rise in
Speaker 1: plastic price, they could go up you know, a hundred
Speaker 1: and you may not even notice. Um, So I think
Speaker 1: the cost passed through for those low value items is
Speaker 1: probably more likely than something that's more of a premium product.
Speaker 1: So explain. You know, one of the themes that's come
Speaker 1: up in our in the show a lot is this
Speaker 1: idea of like, Okay, we had this pretty dismal growth
Speaker 1: in the wake of the Great Financial Crisis, and many
Speaker 1: areas even going into the pandemic, it's seen under investment,
Speaker 1: under build. But you were saying that in ten there
Speaker 1: was already talk then of um too much capacity, of
Speaker 1: a of So can you talk about what was the
Speaker 1: what were the conditions in such that people were worried
Speaker 1: about over capacity gluts and then like what's now like
Speaker 1: how much? How serious and severe is it for the
Speaker 1: plastics manufacturers, like well, I think it lose pricing power,
Speaker 1: like talk to us a little bit more about the
Speaker 1: economic So so in en, I should say, looking at
Speaker 1: capacity editions, there was a wall of capacity edition both
Speaker 1: polyothlene polypropylene kicking in one and beyond um so mostly
Speaker 1: in Asia, a lot of that in Asia, some in
Speaker 1: the US. We've been building up poly athlene capacity in
Speaker 1: the US for the last few years on the back
Speaker 1: of the shale revolution. But you know, you've seen um
Speaker 1: Asia sort of grinding along at very low margins. Um
Speaker 1: they saw some margin improvement during the COVID period, but
Speaker 1: things are back to sort of uh negative or or
Speaker 1: neutral margin territory right now. And that's that's a symptom
Speaker 1: of the capacity that's coming online there. Uh and the
Speaker 1: fact that China was in lockdown, so you you know,
Speaker 1: in some instances has had China, who's usually a big buyer,
Speaker 1: potentially being a seller of some of the some of
Speaker 1: those commodities. So one thing I've been wondering about is
Speaker 1: if the plastics industry experiences the kind of same existential
Speaker 1: concerns that the oil industry does in terms of investment
Speaker 1: and building out capacity, because I think most countries are
Speaker 1: I should say many countries at this point have said
Speaker 1: that they want to move away from one use plastics.
Speaker 1: And you know, we all know that nerdles aren't very
Speaker 1: could for the environment, and they get in like fish
Speaker 1: lungs and stuff like that. But if there's a stated
Speaker 1: goal to move away from plastic production, does that start
Speaker 1: to impact decisions on whether or not to build out
Speaker 1: refining capacity. Yeah. Absolutely, It's It's been interesting actually over
Speaker 1: the last few over the last few years. The solution
Speaker 1: to oils sort of demand concerns long term was what
Speaker 1: would have focused on the pet count space, so build
Speaker 1: up or pet gun capacity. Obviously that's a big risk
Speaker 1: going forward. You are seeing traction on plastics UM use reduction.
Speaker 1: I think it really depends on what you're reducing the
Speaker 1: use of it. The most obvious cases packaging things that
Speaker 1: you see most visibly floating in the water in all
Speaker 1: these sort of terrible images that you see. UM that
Speaker 1: is sort of the low hanging fruit. I would say
Speaker 1: that the one used plastics UM. You know, what are
Speaker 1: the alternatives? That's the tricky thing. Are you talking about
Speaker 1: going back going back to glass? Uh, going back to
Speaker 1: aluminum UM? You know, oh my god, the worst not no.
Speaker 1: But in all in all seriousness, there's also bioplastics UM.
Speaker 1: So bioplastics you sort of split into two categories. One
Speaker 1: is UM. You're using biomaterial to create a UM sort
Speaker 1: of a lookalike chemical structure for that basically replaces plastic UM.
Speaker 1: Arguably that is not very easy to biodegrade UM. But
Speaker 1: you also have the biodegradable design plastic, which can either
Speaker 1: degrade sort of in normal environment or in a compost
Speaker 1: environment and that maybe has a little bit more traction.
Speaker 1: There's a lot of growth there in that space, but
Speaker 1: it's very small as a percentage of the global market.
Speaker 1: It's you know, I would say one percent or maybe
Speaker 1: less than one percent right now of sort of total plastics.
Speaker 1: This brings me to something else I wanted to ask,
Speaker 1: which is how much of our current plastic supply comes
Speaker 1: from recycled plastic? M That is a good question. Um,
Speaker 1: you know, we don't recycle a lot of plastic, to
Speaker 1: be honest, we there's all sorts of figures out there.
Speaker 1: Most of them seem to sort of center around ten
Speaker 1: plastics recycled. Um. You know, the waste of plastic relative
Speaker 1: to um total use is don't know somewhere around I'm
Speaker 1: just ball parking on an annual basis. Uh so you
Speaker 1: do get like in a market that's uh, you know,
Speaker 1: the total markets probably around four dred and fifty million
Speaker 1: tons or ballpark. Um. You know, the stuff that you're
Speaker 1: recycling is the pet so or the you know, the
Speaker 1: plastic bottles that maybe HDPM and it's a lot harder
Speaker 1: to recycle these uh computer screens or this chair so
Speaker 1: there's there's real barriers to sort of recycling the broader.
Speaker 1: You know, you talk about replacing plastics that the low
Speaker 1: hanging f it is is the stuff that we dispose of.
Speaker 1: I think the hard part about dealing with that is, uh,
Speaker 1: you need to make an environment where it's economic to collect,
Speaker 1: economic to either mechanically or chemically recycled at uh and
Speaker 1: sort of you know, make it, make it more of
Speaker 1: a closed loop environment where where a way a ways
Speaker 1: away from that today and it's going to cost I
Speaker 1: think a lot too to get there. But that's what
Speaker 1: really people need to come to grips with is that,
Speaker 1: you know, Uh, it's gonna come down to diligence from people,
Speaker 1: you know, as we walk out of this room, making
Speaker 1: sure we're putting our plastic cup or in a in
Speaker 1: our recyclable container. Beyond that, it's making sure that the uh,
Speaker 1: you know, the the plastic recycler can actually recycle it.
Speaker 1: So is it like a um, a clear shot there
Speaker 1: or is it going to be something where they're going
Speaker 1: to spend a lot of money sorting it um and
Speaker 1: then ultimately um, you know, at the end of the day,
Speaker 1: they don't break even, you know, just before I just realized,
Speaker 1: what is the sort of when if someone said what's
Speaker 1: the price of plastic? And I get the whole we've
Speaker 1: been talking. There's no one plastic and there's no one
Speaker 1: global price. Is there like a number that you would
Speaker 1: say that's like a rough benchmark that you and the
Speaker 1: industry us. I mean, I typically sort of default to
Speaker 1: like polyethylene price or he density polyethlene or a polypropolene price.
Speaker 1: But like you're talking around a thousand dollars a ton
Speaker 1: and where did it you know, what was that pre
Speaker 1: crisis and where did it get to it its peak?
Speaker 1: In ly? Sure? So again, this this comes down to
Speaker 1: where we are with oil prices, because that's going to
Speaker 1: dictate on the margin what people can actually operate at.
Speaker 1: So they need the end product to sell at a
Speaker 1: certain price to actually keep the margins at a level
Speaker 1: that allows them to operate. So, you know, we've seen
Speaker 1: plastics prices above a thousand uh uh dollars a ton
Speaker 1: for a while. They got up to upboards of two
Speaker 1: thousand dollars a ton um during sort of the chaos
Speaker 1: of of one. Now they're sort of down to those levels.
Speaker 1: Oil prices are obviously a lot higher today. Um well,
Speaker 1: I should say marginally higher today, but they were a
Speaker 1: lot higher earlier this year relative to sort of where
Speaker 1: they weren't history, So this is not really a unseen
Speaker 1: territory to where we are today. UM could I ask you,
Speaker 1: know you touched on China reopening, what impact would you
Speaker 1: expect that to have on the plastics market, because like,
Speaker 1: it feels like it could affect it in various ways.
Speaker 1: So on the one hand, you know, maybe you have,
Speaker 1: um well, exports from China to the US have already
Speaker 1: been falling a little bit, but maybe you have more
Speaker 1: domestic consumption because people are going out and buying things,
Speaker 1: or maybe they're not because they were buying things online
Speaker 1: while they were stuck at home. You could have capacity
Speaker 1: ramped up if more people are out and going to factories.
Speaker 1: How are you sort of parsing that development? I think
Speaker 1: there's there's definitely several moving pieces here. I think the
Speaker 1: one that you touched on, the big sort of elephant
Speaker 1: in the room is the fact that people when they reopen,
Speaker 1: they may not be buying as much online. So you're
Speaker 1: not going to have that sort of support for plastics demand.
Speaker 1: Uh in China. I would expect you know, single use
Speaker 1: plastics eating eating out that type of plastic used to
Speaker 1: go back up. UM. I think there's questions around obviously
Speaker 1: China's real estate market and what construction is going to
Speaker 1: look like going forward. That's going to have an impact
Speaker 1: on your construction plastics like PVC. So you know, you
Speaker 1: may see, UM, even when they reopened, that some of
Speaker 1: this plastics demand isn't what it used to be during
Speaker 1: prior years. So what's your outlook overall? Well, I think
Speaker 1: again it comes back to how much capacity we have
Speaker 1: coming online. We have you know, five to seven of
Speaker 1: of capacity growth in the poly athlete poly propel in space.
Speaker 1: You know, you look, UM, you look at GDP growth
Speaker 1: expectations and obviously they range from anywhere and the low
Speaker 1: ones to maybe two and a half m next year
Speaker 1: real g I think I think that there's definitely room
Speaker 1: for further margin contraction here. Ultimately, you know, margin contraction
Speaker 1: tells you one thing, but you know, oil prices at
Speaker 1: the end of the day will sort of be your
Speaker 1: lower lower bound for some of this stuff. So just
Speaker 1: on that note, this might be a slightly odd question,
Speaker 1: but like given that a lot of plastics comes from oil. Um.
Speaker 1: And given that, like a lot of plastic consumption is
Speaker 1: dependent on economic growth and oil is also sort of
Speaker 1: a play on economic growth, can plastics be like a
Speaker 1: leading indicator for what people are expecting for the overall economy.
Speaker 1: I think so. Um, I would say, you're sort of
Speaker 1: shrouded a little bit now with the capacity that we're
Speaker 1: trying to sort of work through today. But certainly, um,
Speaker 1: you're very sort of high up the value chain with plastics.
Speaker 1: It goes into everything, uh again that we use. So
Speaker 1: you start to see demand for plastics pick up and
Speaker 1: margins there pick up, then ultimately I think that may
Speaker 1: be a nice a nice way to sort of signal hey,
Speaker 1: I turnaround is coming. So definitely worth keeping an eye
Speaker 1: on those margins. I just want to just real quickly,
Speaker 1: you know, go but we talked to you mentioned it,
Speaker 1: you know, the concerns about single use plastics, the images
Speaker 1: of huge plastic blobs in the sea. Um, how much
Speaker 1: teeth you know when you look at what governments around
Speaker 1: the world are attempting to do on this, how significant
Speaker 1: is it? Is it a lot of press releases that
Speaker 1: won't really amount too much and or are there some
Speaker 1: real curves and in terms of you know, when you
Speaker 1: think about I don't know the medium term growth of
Speaker 1: the industry, are some of these environmental E s G
Speaker 1: concerns going to curtail it in a meaningful way. I
Speaker 1: think that there is room you sort of extend the
Speaker 1: timeline out long enough and there will be room for
Speaker 1: some meaningful reductions. That the issue when look at what
Speaker 1: drives plastics demand, it's obviously I think population growth is one,
Speaker 1: but also income per capita is one. UM. You know,
Speaker 1: over the last fifty years, uh, the plastic industry is
Speaker 1: sort of like found its way into sort of every
Speaker 1: nook and cranny of everyday life. But now plastics demand
Speaker 1: sort of grows it GDP because you know, there's no
Speaker 1: more like there's I get filled every nooks and crannies
Speaker 1: that are out there everywhere, right, And so to the
Speaker 1: extent that um, you know, getting rid of plastics, you
Speaker 1: have to ask, how do we get here in the
Speaker 1: first place. Part of it is because they're you know,
Speaker 1: incredibly dynamic materials UM and they're usually fairly low cost,
Speaker 1: and so you have to sort of get around that
Speaker 1: to to um uh make to make in roads for
Speaker 1: for either replacement or just reduction of use in general.
Speaker 1: But you know, I guess the other thing that I
Speaker 1: point out is that it comes also down to UM
Speaker 1: human beho of your and our ability to UM. You know,
Speaker 1: if you want to make this a closed loop or
Speaker 1: closer to a closed loop, we need to we need
Speaker 1: to do our part to actually spend the time recycling,
Speaker 1: and we need to build out the recycling capacity and
Speaker 1: all sorts of other things down the supply chain to
Speaker 1: make that work. I have one last question, and it's
Speaker 1: for like my own future educational efforts to learn more
Speaker 1: about plastics. You know, when I think about oil, I
Speaker 1: have like a handful of companies in my mind. I
Speaker 1: understand there's like the big mega oil companies and the
Speaker 1: pipeline providers, upstream downstream drillers all that, who are like
Speaker 1: what is the ecosystem with what is the equivalent ecosystem
Speaker 1: when we're talking about plastics, and like who would be company?
Speaker 1: Like whose conference calls? Should I read? Start reading to
Speaker 1: start learning more? Now it's a good question. UM. I
Speaker 1: would first say that the space, uh, depending on where
Speaker 1: you're looking, is heavily integrated with refining. So some of
Speaker 1: the refineries that you may be reading the transcripts on
Speaker 1: are also the ones that are produced seeing the plastic um.
Speaker 1: I think there's a lot of and I don't know
Speaker 1: if I should name names here, but large chemical companies,
Speaker 1: um you know you name them, uh like a du
Speaker 1: Pont or something. Is that ad knock? I mean when
Speaker 1: I was an Abu Dhabi, ad Not made its big
Speaker 1: move into petro chemicals for exactly the reasons we've been
Speaker 1: talking about. And then are there separate companies that then
Speaker 1: like take some sort of like raw like specialize in
Speaker 1: the molding, like the molding of a specific plastic into
Speaker 1: like a like yeah, I don't know, like what's the
Speaker 1: next that's sure to exactly you're taking the buyer of
Speaker 1: those pellets, who's then uh making a bottle or or
Speaker 1: a clamshell or sort of you name it. That that's
Speaker 1: I think a little less integrated than the upstream, right. Uh.
Speaker 1: There are plenty of companies out there that that sort
Speaker 1: of sitting in that bucket, but that are sort of
Speaker 1: plastics or packaging specialists. Right. All right, well, Warren, thank
Speaker 1: you so much for for kicking off our education on plastics.
Speaker 1: I'm sure there's going to be more to come, but
Speaker 1: I really appreciate that. That was great. Thank you for
Speaker 1: your time. Thank you so much, Joe. I think I
Speaker 1: have a new ambition in life. I want to build
Speaker 1: a nerdle pipeline. You can make a fortune. It's like
Speaker 1: a nerdle pipeline from you know, I don't know where's
Speaker 1: the in which direction, Where's how do you take advantage
Speaker 1: of it? You know, since I'm dreaming big, I'm just
Speaker 1: going to say around the world, the world, It'll go everywhere. Now.
Speaker 1: But I thought that was a fascinating conversation, and I do.
Speaker 1: I do think that this might end up being an
Speaker 1: unappreciated aspect of consumer goods inflation overall, and also just
Speaker 1: the idea of looking at the plastics market as sort
Speaker 1: of an early read potentially on the economy and economic growth.
Speaker 1: That seems interesting too. Yeah, I mean, there were a
Speaker 1: bunch of interesting things, you know. I do think, like
Speaker 1: you know, the disruption of that Texas freezers underappreciated. When
Speaker 1: we talked about a literal storm contributing to the perfect
Speaker 1: story perfect storm, perfect storm created a perfect storm. It
Speaker 1: was a perfect storm that contributed to the broader perfect storm,
Speaker 1: and so how long that took to fade, and then
Speaker 1: just this idea that like, Okay, you know, we might
Speaker 1: be in this situation where there's a lot more capacity
Speaker 1: coming online than the growth, so it's sort of like
Speaker 1: this this wall of plastic capacity is kind of an
Speaker 1: interesting theme. And again, whether that inflation turns turns to
Speaker 1: disinflation over the course of well, that kind of gets
Speaker 1: back to the like existential questions facing the energy industry
Speaker 1: as well, which we've been discussing on the podcast, because
Speaker 1: a lot of oil producers went into petrical petrochemical refining
Speaker 1: in order to sort of diversify away from just drilling
Speaker 1: and pulling hydrocarbons out of the ground. But if everyone
Speaker 1: does that at the same time, is it actually going
Speaker 1: to be profitable or work. The other thing that I
Speaker 1: thought was interesting was, you know, the talk about recycling,
Speaker 1: and I think it was in October that we had
Speaker 1: Green Peace basically come out and say that plastics recycling
Speaker 1: doesn't work and we need to find another solution. I'm
Speaker 1: I'm a recycling skeptic. That's fair. I should I should
Speaker 1: point out that the plastic cups featured in this episode
Speaker 1: are in fact recyclable, whether or not anyone is actually
Speaker 1: making money recycling them and reusing them. Is it is
Speaker 1: an open question? All right? Shall we leave it there?
Speaker 1: Let's leave it there? Okay, this has been another episode
Speaker 1: of the All Thoughts podcast. I'm Tracy Alloway. You can
Speaker 1: follow me on Twitter at Tracy Alloway and I'm Joe
Speaker 1: wi Isn't Though. You can follow me on Twitter at
Speaker 1: the Stalwart. Follow our producers on Twitter Carmen Rodriguez at
Speaker 1: Kerman Arman and Dash Bennett at Dashbot. Follow all of
Speaker 1: the podcast is Bloomberg unto the handle at podcasts, and
Speaker 1: for more odd Lots content, go to Bloomberg dot com
Speaker 1: slash odd Lots, where we post transcripts of each episode
Speaker 1: Tracing I Blog. We have a newsletter that we write
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Speaker 1: for listening.