UN plastics treaty: Regulation required to address financial risks of polymer markets

The plastics production industry faces severe financial risks. Global regulation on polymer production is needed to achieve market stability. Consider:

• Markets are oversupplied. Capacity for high-volume commodity polymers like polyethylene and polypropylene is underutilized, with demand growing at a slower pace than capacity expansion.
• Slow economic growth and the scalability of new technologies will even further reduce the demand for primary plastic polymers. Self-recovery for demand to create financially sustainable capacity utilization rates is not on the horizon.
• Companies are facing historically reduced profit margins, which is leading to credit warnings due to their weak financial performance.
• Countries and companies seeking to control the supply of plastics have been upended by companies and countries seeking to export surplus commodities. A global production cap will support national policies designed to stop the flood of cheap plastics.
• Market and other methods to increase the supply of cheap plastics undermine the viability of recycling.

The treaty should pause the expansion of production capacity for fossil-based, high-volume commodity polymers.

• New construction plans for ethylene, polyethylene, and polypropylene operations will exacerbate the existing oversupply and overcapacity conditions. For example, operating rates for some polypropylene precursor facilities (PDH) in China are as low as 50%.
• The slow-growth economy will lower absorption rates, and the conditions will likely continue unabated through 2030, if not longer. Yet analysts have identified continued buildout.
• Expanding fossil-based production capacity for some of the main polymers is no longer practical if industry leaders seek a stable investment rationale. Given the low demand, more capacity means smaller profitability margins for existing investments.

The treaty must enable a production cap that aligns declining plastic demand with a policy intervention that targets nonessential primary plastic polymers.

• A production cap would set progressively stricter, country-specific targets on the production volume of various polymer compounds and derivatives, and will aim to achieve a global reduction target.
• Developing a production cap will help companies manage the declining demand for primary plastic polymers in a way that protects the profitability of existing investments and reduces investment risks, which might otherwise be jeopardized if left to market forces alone.
• It is unclear how polymer prices would react to a production cap in a period of oversupply, declining demand from slow growth, and unprecedented competition. An unregulated market facing these combined factors could just as likely lead to a precarious downward spiral, harming profitability and investment.
• Plastics are an essential business. A production cap, coupled with demand-side measures, will operationalize the definition of essential uses and allow us to produce only the plastics we need.

Leaving markets without regulation is no longer practical if industry leaders seek a stable investment rationale. The current situation—substantial petrochemical oversupply with clear downward pressure on demand for virgin plastics—requires a remedial agreement among the parties to turn what is a problem into an operationally sound opportunity to achieve market stability and the goal of ending plastics pollution.