Plastic waste has BOOMED from the 15 million tonnes we lobbed over the fence in 1964 to approximately 360 million tonnes in 2019(1).   The CO2 emissions from plastic waste are around 80% of the aviation industry’s total footprint (2).

The challenge for humankind is not only environmental pollution but also how to mitigate the impact on our health; plastic has health implications for our continued wellbeing at every stage of our lifespan. It’s estimated that 32% of it ends up in our oceans and rivers each year.

Single use plastic has, understandably, been given all the focus, given there is the least justification (or most guilt) for its continued use. Mechanical recycling rates are low and at best it ‘down-cycles’ rather than displaces the need for virgin resins. The process of ‘plastic pyrolysis’, which is basically a chemical reaction, breaks down plastic to its original naphtha state (a mixture of hydrocarbons). While pyrolysis is a good scrabble word it is not much use for solving our problems yet. There are significant challenges; it produces, for example, lots of diesel – not the favourite hydrocarbon child.  It also requires a very efficient collection mechanism. Therefore the process remains quite expensive compared to cheap virgin feedstock, particularly as commodity prices remain low.

Rain or shine we’ll need our plastics but it seems unlikely that this is enough to prop-up our extractive industries at their current scale. Currently, 69% of a barrel of oil is used in transportation industries (4). As more and more oil demand is displaced from the continued shift to clean modes of transport, the input costs will increase for plastics. On a relative basis other materials may become more attractive, the chemicals industry will therefore have a challenge to retain the relative attractiveness of its product to all its customers.

Even if all the challenges of chemical recycling are surmountable, companies are not investing fast enough. Why would they? I expect the economics look terrible. Currently many refineries, such as those on the US Gulf coast, enjoy geographic cost advantages. They are located, for example, close to supply or shiny new pipelines. The return on investing is likely lower for new projects to invest in recycling where their output will have no such advantage.

All the while the US keeps building pipelines to the Gulf with 20-year payback periods, enabled by loosened environmental controls.

“Cause Jesus’ plastic doesn’t hear
‘Cause he has a plastic ear
The man who invented plastic
Saved my soul.”
Source: ‘Plastic Jesus‘: song by Ed Rush and George Cromarty

1) J.P.Morgan Petrochemicals – Peak Plastic
3) Ellen MacArthur Foundation

About the author

Jonathan Parsons is an Investment Manager in the Equities team with responsibility for North American equities. He also manages a global technology portfolio and contributes to the idea generation process for our global equity portfolios. Prior to this, he worked as a Quantitative Analyst, also in the International Equities team. Jonathan joined us in 1996 straight from university and has 24 years’ industry experience*. Jonathan studied Mathematics & Computation at Loughborough University of Technology and is a CFA charterholder.  *As at 30 November 2019.

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