Mike Boswell – also known as Polymerman – is the Managing Director of UK-based materials distributor Plastribution. Here he looks at the new world order and its impact on polymer prices.
The Russian invasion of Ukraine in February 2022 is likely to have significant geopolitical implications, which in turn will impact global polymer supply.
In the Cold War period from 1947 to 1991, trade between the East and the the West was highly constrained with neither block wishing to be reliant upon the other. The ‘thaw’ that took place over the next three decades witnessed commercial opportunities overtake the legacy of political tensions and trade between the blocks has boomed. The West, particularly, has exploited opportunities to obtain raw materials and take advantage of plentiful low-cost labour from the East. Included in this trade is oil, gas and petrochemicals, with about 12% of global crude oil being supplied to the world market by Russia, along with significant volumes of natural gas, petrochemical feedstocks and petrochemical products including plastic raw materials. This interdependence is clearly illustrated by the current energy crisis that Germany is facing due to its heavy reliance on Russian origin Natural Gas.
In considering the implications for polymer supply, it is worth considering the relative ease of transporting hydrocarbons in their various physical formats.
The relative ease of distribution of polymers coupled with a relatively disparate customer base of regional plastics converters has led to quite significant penetration of Russian PE and PP into the EU27 and the UK. Partly as a result of a combination of political pressures and import duties being applied by the UK Government on Russian PE imports, a key Russian producer has shuttered its European sales activity. Substitution of US origin PE for Russian PE is both timely and opportune; however, replacement of missing PP volumes is less obvious with countries such as Thailand and South Korea providing potential solutions for the complex portfolio required by European processors.
In the longer term, the probability of an East/West global divide will not even drive more local sourcing of existing polymer requirements, but there is the possibility that manufacturing of high value consumer goods currently taking place in the East will increasingly be re-shored to the West with a subsequent boon in polymer demand for typically polymer rich products.
For UK plastics converters the current geopolitical events are likely to be disruptive both in the short and medium term and further reinforce the move from ‘Just in Time’ to ‘Just in Case’ purchasing strategies.