Who Is The Ultimate Winner in The 100-billion-level Market For Biodegradable Plastics？

Everything in the reality of degradable plastics has been transmitted to the capital market without any discount. The stock prices of leading companies such as Jinfa Technology, Jindan Technology and Hengli Petrochemical have all experienced a deep correction.

Due to internal and external difficulties, once given great hope of the 100 billion market, it seems to have a state of silence. As for the current situation of the biodegradable plastic industry, Teacher Ma seems to be the best way to describe it:

The long term must be good, the short term is very difficult, the medium term is more difficult.

The value of biodegradable plastics comes from the hazards of conventional plastics.

Statistics show that between 1950 and 2015, humans have produced 8.3 billion tons of plastic products, which together would create a 5,680-meter-high mountain.

Most of this plastic is abandoned or buried in landfills, where it typically takes 200 to 700 years to degrade, releasing toxic substances that can harm entire ecosystems.

Plastic left on land damages soil structure and erodes soil ecology, making soil less productive and further threatening food security.

Plastic waste that ends up in the ocean forms microplastics. Research now suggests that microplastics could in theory be absorbed by humans through the gastrointestinal system, eventually triggering an immune response and affecting the health of the body's cells.

According to a study published in Science in July 2020, the world currently produces 380 million tons of plastic waste each year, of which about 11 million tons end up in the oceans. At this rate, by 2040, about 710 million tons of plastic will be released into nature, including 29 million tons into the ocean, which is equivalent to 50 kilograms of plastic for every meter of the world's coastline, picture yourself.

Europe was the first country to sound the alarm about plastic.

As early as 20 years ago, Ireland, Italy and other countries have introduced "plastic restrictions", and China has been promoting the paid use of plastic shopping bags since 2008, but the intensity and coverage is very limited. Until recent years, as the global clampdown on plastics escalated, so did China.

Over the past five years, more than 60 countries have imposed bans or taxes on single-use plastics, according to IEA statistics, while major economies such as the European Union, the U.S. and China have upgraded "plastic restrictions" to "bans."

In July 2020, the European Union announced a levy on plastic packaging waste, with a levy of 0.80 euros per kilogram of plastic waste. From January 1, 2021, non-degradable plastic shopping bags will not be used nationwide, and non-degradable disposable plastic straws will be banned in the catering industry, according to a guideline issued by China on further strengthening the control of plastic pollution.

As China is the world's largest producer of plastics and a supplier to major global consumer markets such as Europe and the United States, the process of replacing biodegradable plastics will bring huge room for domestic enterprises to grow.

Data from the China Plastics Association Plastic Recycling Committee show that in 2020, China's total plastic consumption is 90.877 million tons, even if only 10% of the future by degradable plastic replacement, then at least 100 billion scale market.

Degradable materials mainly include starch-based plastics, PLA, PBAT, PBS, PHA and other categories. According to the data of Zhian Consulting, starch-based plastics, PLA, PBAT are the most important three kinds, accounting for 38.4%, 25.0% and 24.1% of the production capacity respectively in 2019, accounting for nearly 90% in total.

It is worth noting that although starch-based plastics now account for the highest proportion, they have poor prospects due to their own performance disadvantages. PLA and PBAT have the most room for development. At present, the capacity of degradable plastics in the global planning is mainly these two kinds.

In 2020, China's annual output capacity of PBAT and PLA is about 300,000 tons and 100,000 tons respectively, accounting for about half of the global production capacity. It is expected that by 2025, the annual production capacity of PBAT and PLA will reach 7 million tons and 1 million tons respectively, accounting for more than two-thirds of the global production capacity.

But it's also true that only 40 percent of domestic biodegradable plastics were used in 2021. In other words, the big picture on paper is not echoed in reality.

Cost is the core barrier that restricts the popularization of a new technology or new product. The fundamental reason why photovoltaic, wind power, lithium battery and other new energy industries are so popular today is that they have achieved leapfrog victories in cost reduction over the past decade.

Ten years ago, the benchmark electricity price of domestic PV was 1.15 yuan/KWH, much higher than the cost of thermal power. In 2020, the weighted average electricity price of PV bidding projects dropped to 0.372 yuan/KWH, without thermal power. Between 2010 and 2020, the global average price of lithium-ion battery packs dropped from $1100 /kWh to $137 /kWh, a drop of nearly 90%.

The commercial spread of biodegradable plastics is being trapped in cost.

In 2021, the overall price of traditional PE/PP plastic is between 7000-8500 yuan/ton, the price of PET is 5000-6000 yuan/ton, while the price of PBAT in degradable plastics is around 20,000 yuan/ton, and the price of PLA is higher, reaching 28,000 yuan/ton.

To the terminal, if the merchant uses degradable plastic, the cost is directly increased by a factor of two.

Take the 23-24cm straw as an example, the price of traditional PP is 0.05 yuan/root, paper straw is 0.1 yuan/root, PLA is 0.2 yuan/root. The price of PLA is twice that of paper straw and four times that of PP. After the implementation of the "plastic ban", businesses will naturally choose cheaper paper straws first, and the degradable plastic market is difficult to completely open.

The cost is high, reflected in every link.

At the manual level, a single ton of PBAT production capacity requires 16-20 workers, while PE (polyethylene plastic) only needs 4 workers; In terms of equipment cost, the investment of PBAT per ton is about 4000 yuan/ton, while the investment of PE per ton is only about 1400 yuan/ton. In terms of energy consumption, according to the EIA data of Ruifeng High Materials, the cost of water, electricity and gas for a single ton of PBAT is 712 yuan/ton, while the cost of PE is less than 600 yuan/ton.

The largest cost term is raw materials.

Taking PBAT with the most aggressive capacity planning as an example, the cost of raw materials accounts for more than 70%, among which PTA, AA and BDO are the most important. The price elasticity coefficient of PBAT for these three raw materials is about 0.4.

In 2021, the price of BDO soared. At the beginning of the year, the price was around 12,600 yuan/ton, and by the end of the year, it had risen to 31,000 yuan/ton, an increase of nearly 150%, which dealt a blow to PBAT in the stage of cost reduction. The profits of some enterprises have been inverted, and the highest loss is about 2,000 yuan per ton, so there is no incentive to start work.

According to media reports, the relevant national ministries and industry association organization BDO held a coordination meeting with PBAT enterprises recently, and all parties reached a consensus, and BDO enterprises agreed to give profits to PBAT enterprises.

Policy intervention is bound to ease the cost pressure on related enterprises, but the price is ultimately determined by market supply and demand.

As mentioned above, 7 million tons of PBAT production capacity has been planned in China. According to the calculation that 1 ton of PBAT consumes 0.43 tons of BDO, the new production capacity alone requires 3 million tons of BDO. As a comparison, the current total domestic BDO production capacity is only 2.34 million tons/year. Although the expansion plan of nearly 6 million tons/year was launched in 2021, the BDO expansion cycle is around 2 years, and this capacity will not be released on a large scale until 2023 at the earliest.

More noteworthy is that all the domestic use of calcium carbide acetylene production BDO, in the "dual control of energy consumption" policy background, calcium carbide enterprises limited production has become the norm, the future output can keep up with a big question mark.

Considering various factors, the cost reduction process of degradable plastics represented by PBAT is slow and long, and the failure to reduce the cost will directly inhibit the long-term demand, so it is basically unrealistic to expect the volume in a short time.

Biodegradable plastics is a high degree of homogeneity of the industry, all competition will cost around this theme, the future industry will be in the "competition - authors on - demand growth - competition - then authors price" in the cycle of iteration, until production cost approximation theory, or to the extent to satisfy the demand of the market cost desensitization.

After a round of shuffling, most of the manufacturers will be eliminated until the industry forms an oligopoly pattern. To be clear, price competition will get fiercer as capacity rises across the industry.

The investment intensity of a single 100,000-ton PLA production line should be at least 1.5 billion yuan. The depreciation of PLA cost alone reaches about 1,500 yuan/ton. With the continuous decline of price, the pressure of this rigid cost will be continuously amplified.

According to the previous loss of 2000 yuan/ton, the loss of 100,000-ton production line is 200 million yuan. If the production capacity is increased to 500,000 tons in the later period, the loss will reach 1 billion yuan. This is too much for most companies in the industry to bear, and companies with poor cost control ability have to surrender the market at last.

Integrated operations have more cost advantages, and the final winners will be born in these enterprises.

In the PLA field, Kingdan Technology is the most impressive.

The PLA industry chain from top to bottom is corn-lactate-lactide-polylactic acid (PLA). At present, the large-scale production of PLA by domestic enterprises is mainly stuck in the lactide link. Jindan Technology and Nanjing University cooperated and finally developed successfully after 5 years. In 2021, Jindan Technology announced on the interactive platform that the company's Lactide project production line has been able to stabilize the output of lactide products in line with the design requirements, and the company has become the only enterprise in the industry with the layout of the whole industrial chain.

At present, the Lactide production capacity of Jindan Technology is 10,000 tons per year, and the PLA market selling price is over 30,000 tons per ton. Calculated by 30% net profit margin, this part of production capacity will bring the company a net profit of 90 million yuan, which is a great increase compared with the net profit scale of 118 million yuan in 2020. In addition, Jindan's planned PLA production capacity of 100,000 tons/year is expected to be put into operation in 2023, which may completely open the performance ceiling.

After the complete localization of lactide, the focus of cost competition of domestic enterprises will be shifted to lactic acid field where the upstream scale effect is more significant. The investment cost per ton of PLA is about 5,000 yuan, while that of lactic acid is about 6,000 yuan. The economy can only be reflected when the production scale reaches 100,000 tons. Therefore, the first large-scale lactic acid enterprises have more advantages.

Jindan Technology is the largest domestic and the second largest lactic acid enterprise in the world. Currently, it has a lactic acid production capacity of 105,000 tons/year, accounting for more than 60% of the domestic market. With the deepening of the industry cost reduction process, the competitiveness of Jindan Technology in the PLA field will be more and more significant.

Despite the planned capacity of several million tonnes in the PBAT sector, few companies are vertically integrated to produce BDO.

The chemical giant Wanhua Chemical is one, but the company currently has only 100,000 tons of BDO capacity and 60,000 tons of PBAT capacity. Even if the production is put into operation, the new performance will not have much impact on the company's annual revenue of 100 billion dishes. The key is to focus on whether the company will have greater action in the later period.

Biodegradable plastics today look a lot like photovoltaics did a decade ago.

The prospect is infinite, but the industrialization was stuck the neck by the cost, the policy is highly supported, the business community will instantly pull the capacity explosion.

According to data given by CITIC Securities, the domestic market size of degradable plastics will not exceed 3 million tons by 2025, while PLA and PPAT alone have planned more than 8 million tons at present.

Cao Renxian once described the photovoltaic industry as: "This is a marathon, the key is who can finish last."

Over the past two decades, many large and small photovoltaic enterprises have been doomed or weakened. They tried to seize the market with capacity scale without cost advantages, only to be trapped by themselves. Some of today's aggressive expansions in the biodegradable plastics industry are likely to repeat the same fate, becoming martyrs to the industrial revolution.

Read these, will understand Wanhua this old chemical enterprise's sophistication and pragmatism, they are not the fastest, but may be the farthest.