Aug 14

Plastics Prove Harder to Give Up Than Cars During Quarantine

Stephen Bierman
May 25, 2020

The pandemic and quarantine has shown that the world may be able to live without its cars but apparently the same isn’t true for its plastics. 

Petrochemicals are proving shelter for oil amid the rout covid-19 has brought to global crude prices, according to the International Energy Agency.

“I wouldn’t think the petchems industry will be so badly affected as other sectors of the oil consuming sectors,” International Energy Agency Head Fatih Birol said referring to the long term outlook in Paris May 14.

Global lockdowns aimed to slow the spread of the deadly corona virus have halted flights and reduced transit leading to massive reduction in crude demand. With fleets of oil tankers sitting in the gulf chartered as storage and US reservoir hubs booked out, prices collapsed. Basically the world’s gas tank overflowed and for a remarkable moment last month prices even moved negative.

Even as cars remain in the garage, and jets in the hangar, the world continues to need and use polymers and plastics. The petrochemicals sector, has taken a hit, yet the effect has been muted due to this. Demand for materials for personal protective equipment and other sterilized medical uses has jumped. Packaging for food that helps prevent spoilage remains in high demand. 

Its for this reason, among others that petrochemicals should remain “resilient,” in the long term, according to Birol. 

Russia’s largest petrochemicals producer Sibur, which also exports to Europe reported flat net operating cash flow in the first quarter compared to a year earlier, according to financial results released on May 14. 

“While certain industries among our end consumers have been under pressure from the recent extraordinary events, demand from the healthcare and food industries has significantly increased and is expected to maintain at the new higher level in the foreseeable future,” Chief Executive Officer Dmitry Konov said in a release with the results.

Sibur will get a boost as the newly constructed ZapSib plant, one of the worlds largest new plants, ramps up production. Even so it is adjusting. Sibur said it had launched an optimized capital expenditure program. 

Germany’s BASF first quarter ebitda beat analyst estimates, according to a Reuters article last month. Yet it also is adjusting reducing expenditure from plans as rolling lock downs and resumption’s in pandemic response move from China to Europe and the USA.

Oil producers meanwhile are slamming on the brakes with investments globally as prices take their toll and OPEC+ pushes ahead with massive output cuts. Exxon and Chevron have slashed investment into shale. Meanwhile, Royal Dutch Shell went as far as to cut its dividend. 

Oil markets are showing early signs of rebalancing yet remain fragile as nations come out of lockdown, a process that should start in earnest in the third quarter, according to Birol. 

In the meantime, it appears that oft-maligned plastics use ought not apply to the material at all – its been essential in global health and safety.  The focus of the dialogue should switch to proper waste collection and innovative approaches to recycling.

Stephen Bierman

Stephen Bierman is a finance and energy reporter with over 15 years of experience, including at Bloomberg News and Energy Intelligence.

Tweets at: @StephenBierman1

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