Plastics Reflections Web Series: 2021 Outlook for the North American Plastics Market

March 24, 2021 • Posted in Market Insights

The impact of COVID-19 has forced many industries to rethink their operations and strategies in the face of rapid and ongoing changes. The plastics industry saw major shifts in both manufacturing and distribution, but also a drastic change in the public’s perception of how the sector is viewed. We recently kicked off our M. Holland Plastics Reflections Series, where panelists, Andrew Reynolds, Director at global plastics consultancy, Business Publishing International (BPI); Ray Hufnagel, President and CEO of Plastic Express; Frank LaRocque, Director of Resale Sales at M. Holland Company; Mike Foldvary, Director of Distribution Sourcing at M. Holland Company and our host Dwight Morgan, Executive Vice President of Corporate Development at M. Holland Company, offered their perspectives on several topics, including how end-use markets can respond to growing material demand and how companies should approach growth and drive profit in the face of market uncertainty.

Reflecting on 2020

The initial shock of plunging demand during COVID-related shutdowns in Spring 2020 was followed by unprecedented demand across specific sectors, particularly sanitation, medical products and food supply. “We were surprised by the unexpected demand we saw from some industries, like food take out, construction and building supplies, as well as stay-at-home recreation and leisure,” Frank LaRocque commented. “In my experience, when prices go up this quickly, they will gradually adjust over time. I think when the world gets vaccinated, people will change the way they spend their dollars.” He anticipates a similar adjustment where we start to see demand level off, giving industrial customers the opportunity to come back and thrive as they have in the past.

According to Mike Foldvary, suppliers were initially caught off guard. As they looked at the degradation of demand, they had to rethink how to run their assets. “There was definitely a lot of work on the front-end that tried to prepare us for what the market realities would hold in the May-June timeframe,” he explained.

However, demand returned more quickly than anticipated. Foldvary added, “it was too late to start up the assets and get production going to meet the demand.” Compounding the challenges, producers were unable to turn to other regions or countries to meet demand and equalize supply.

From a logistics perspective, Ray Hufnagel explained that Plastic Express’ trucking operations were busy from the start of the pandemic, when they were already addressing prior challenges such as driver shortages. “It has been a very challenging year for equipment and drivers from a domestic standpoint,” he said.

Hufnagel also described exports as virtually nonexistent. “Not only the pandemic, but also the aftermath of two hurricanes, recent plant outages and force majeures — we’re still very much feeling those effects,” Hufnagel said.

North American Plastics Market: Trends and Outlook

According to Andrew Reynolds, despite a myriad of challenges, the global plastics industry still grew in 2020. And while plastics still faces adversities, mainly from public perception, its valuable impact on the economy is undeniable.

Reynolds highlighted the industry’s scale: at least $95 billion in resin value; at least $170 billion in value-added products; and at least $325 billion in consumer revenue. The value of plastics is also reflected in the diversity of end-uses, from construction to housewares, with over half of the plastics used in North America for packaging evenly split between flexible and rigid.

According to Reynolds, the growing population is one reason we can be confident in a positive industry forecast. North America’s population is expected to reach 685 million by 2050. That increase translates to an even higher demand for food packaging, construction materials, consumer products and medical equipment.

Reynolds also had a positive view of the resin market, with 1.6% annual growth estimated through 2030. However, he warned that North America could reach peak demand for virgin plastic by 2025. Reynolds compared this trajectory to that of when North America hit peak oil nearly two years ago. He explained further that, “we will still see growth in polymers, but it might not be growth in virgin plastic that we’re seeing in other areas, particularly recyclables.”

When discussing the short and long-term impacts of COVID-19 on the industry, Reynolds identified supply chain challenges and efficiencies as one of the most significant implications. Before the pandemic, globalization was a major focus for businesses, but that will no longer be the case. “Businesses are going to ask: Do we need to bring a greater proportion of our supply closer to our factory so that we don’t experience these kinds of dislocations again?”

For 2021 and 2022, Reynolds sees things in the industry picking up strongly thanks to pent-up levels of demand and consumer cash reserves. In reference to the M. Holland 2021 Economic Forecast with Alan Beaulieu, Reynolds pointed to the historically low interest rates as opportunities for businesses to invest. He sees greater infrastructure investment as a positive for plastics in addition to these low interest rates. 

In terms of long-term industry challenges, Reynolds thinks that because plastics is no longer the default material of choice for brands, the industry will have to work harder to gain traction in the marketplace. He also anticipates increased regulation, which will present challenges to businesses across the board.

During his closing remarks, Reynolds reflected on a conversation he had with a large retailer several months ago. “If plastics were invented today, it would be a green technology.” Reynolds feels that this sentiment speaks to the heart of plastics’ contribution and should be a part of the conversation as the industry moves forward. Despite these positive long term-industry projections, market volatility will persist for plastics businesses in the immediate future.

Looking Forward and Planning for the Future

Panelists had some advice to share with businesses trying to map out and operate successfully over the next few months, and despite their unique perspectives, generally, they all agreed on one thing: we should brace for volatility.

“We have significant capacity coming in both polyethylene and polypropylene, and when these plants come on, it can create some short-term volatility,” LaRocque explained. He also emphasized the importance of strong partnerships between suppliers and customers and advised businesses to build volatility into long-term contracts to flex up or down when the market allows.

Foldvary agreed with LaRocque and urged companies, customers and suppliers to plan and use the multitude of resources available to the plastics industry to predict market trends and obstacles.

For Hufnagel, he predicts greater investments in infrastructure to support the increase in resin inventory. But he expressed — like M. Holland has also expressed in the past — the need for the supply chain to continue to be optimized. “If we can get the inefficiencies out of the supply chain by educating customers, decreasing the amount of time we spend at a delivery site — everything helps,” Hufnagel said.

Reynolds expressed optimism for plastics and how our heightened awareness of safety and health will positively drive the industry. “The experience of last year should remind us just how vital a role we play in the societies and communities we’re in,” he said.

While plastics is still experiencing the lingering effects of 2020, the past few months have also helped grow and strengthen the industry. From how businesses plan and build contracts to promoting a greater awareness of plastics’ role in every aspect of our lives — 2020 was a year of transformation. Over the coming years, we certainly anticipate growing pains and unforeseen obstacles, but we also now know that there are real opportunities that can come from those circumstances.

To view the full web event recording, click here and stay tuned for details and updates on the second episode of the Plastics Reflections Series by following M. Holland on Facebook, Twitter and LinkedIn.


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