Plastics State of the Market for April 2024 from Cody Bates:

China:  Funny, I kind of say it with a different accent now a days.  Anyway, we currently have an interesting situation going on that I had not put together till recently. As you may or may not know, China has been on a push over the past couple of years to lower their imports of plastic resin and produce more domestically. This started a couple of years ago and seemed a little odd to me because during COVID and the subsequent supply problems that occurred to the US and Europe, it seemed that more manufacturing was being on shored back home and not being sent to China. While this may be true, the Chinese have once again demonstrated their ability to look long term as opposed to every 90 days like we do here in the US.  The new production capability of homegrown plastics now fits in very well with China’s push to increase manufacturing yet again. They are doing this in an effort to diversify their economy away from dependence on property development, which has bit them in the ass over the past two years, and back to their tried and true method of domination, throwing bodies at manufacturing in order to make money.

As I know you’re probably saying, that is all well and good, but how does that matter to us?  The thing that makes a big matter to all of us, and should be an issue of concern, is how Russia fits so neatly into this plan.  What no one was really thinking about when all of this started, at least not in the West, was Russia increasing it’s attempt to take over Ukraine two years ago. This has made Russia the new and current bad guy in the world.  As punishment for their bad guy status, please don’t forget that we as the rest of the world, have put a severe restriction on the sale of Russian oil. While the rest of the world gives Russia the cold shoulder and does not want to purchase that oil, China, who has long been relatively apolitical and more than happy to stay out of another countries internal affairs, has been the major destination for much of what Russia is currently producing. Make no mistake, the Chinese are not doing this solely out of goodwill. At present, Chinese oil carries $20 to $30 per barrel discount to the price of oil sold and traded in the rest of the world. With oil hovering around $80.00, this $50.00 to $60.00 Russian oil makes plastics produced in China much cheaper than those produced here in the US. Also, just like Asian resins are cheaper here in the US than domestics, our domestic resins sent to Asia are often sold cheaper than they are here in the US.

OK, so all of that with a bow on it? What this means is competition from China is far from done. Right now we are a bit insulated because of the tariffs that Trump put on the Chinese when he was in office.  The Europeans are much more free trade minded than the US has been recently, and they are currently crying uncle for their domestic manufacturing base because of a flood of cheap Chinese imports that they have been receiving over the past few years. This is not letting up and will probably continue to get worse because more and more of the resin production plants are coming online this year in China, the push from the Chinese government for expanded manufacturing is continuing, and the Chinese are really good at picking a sector and completely overbuilding capacity in it. Unfortunately for the United states, the Chinese have somewhat figured out a loophole around The US tariffs and sanctions. Chinese companies have been greatly expanding their footprint in Mexico over the last two years. What this means is they will be able to import resin from China duty free into Mexico, produce it in Mexico with cheap labor, and then ship it up across the US Mexico border without having to deal with any Chinese facing tariffs the US has in place. This is already occurring as Mexico late last year officially became the US’s largest trading partner. I believe that this is going to be a much bigger story in 2024 than people realize and is something as a plastics person you need to keep your eye on and how it’s going to affect your business.

Manufacturing in the US:  We are about to come into the time in politics that I like to call the “emperor has no clothes” season.  At the state and federal level, the party in power is going to tell you how great everything is, and the party trying to take power is going to tell you how terrible everything is.  My hope is that everyone go into this summer and fall with their eyes and ears tuned a little better to keep the inevitable noise down to a minimum.  Before the last presidential election in October the US produced and sold more polypropylene than any time in history.  Then, due to demand, there were increases that year in November and December, both due to demand.  What you heard then from the media was that the economy was terrible, and if you remember from our little corner of the business, it was running white hot.  This was just before the big freeze event in February.  Just know that you are going to hear from both sides how good/bad things are, but keep in mind what is really going on because where we traditionally look for news and direction is going to skew things even further than normal to try to give their side the advantage.  I am not pointing fingers at CNN or FOX individually, because everyone in the business does it.  What I am saying is read your own tea leaves because you have to make decisions for you and your company based off of the best information you can muster, and we are all still going to be here after the election trying our best to win our own race. 

In a shout out to our current market conditions, we are in a season right now of slow consumption and most folks I talk to are just bumping along without any real excitement.  Some are really slow and some are doing OK, but no one is “running like hell”.  A couple of signs to me are a bit worrying right now.  Freight volumes for a lot of LTL shippers are down quite a bit right now.  When I hear this, it tells me that there is not a lot of production going on at the smaller industrial facilities across the US.  The second thing is the attempted extension of terms by a lot of customers right now.  Way back in the day, when everything was rocking, terms were pretty standard 2% 10 net 30 days.  Now suppliers are being asked to do 60, 90, or even longer terms.  This is really showing the stretch marks of the system because as suppliers have to go to longer terms, the cost of the money gets baked into the price of the products they are supplying, and the price to the consumer all heads higher in the end.  It is a vicious cycle that is a really explicit sign of a weak economy.  The only way out of this in the past is for a strong economic recovery to push up profits and allow the lean way of running to go by the wayside.  Lets hope…..

NPE:  NPE in May is the World Cup of the plastics industry, happening every 3 years and everyone brings their A game.  If you are reading this far into my email then you care about what you are doing, and if you can make it to NPE, I highly suggest it.  Not only do you see the latest in everything under the sun for our industry, you get to meet and greet with people you may only ever talk to over the phone (or read like me).  Everything in this world I believe still is made better by better relationships, and this is the one place where you can spend the travel money to go, and I feel get the best bang for the buck of networking.  I think about it like this: I put a lot of effort into this email for everyone and it has paid off tremendously.  I have learned a lot, got a many of you to think about the bigger picture, and in getting this in so many hands, have become a trusted supplier to a lot of companies who have been willing to give me a look.  Attending something like NPE allows me to help solidify those relationships for those who live in far flung corners of the US that I don’t ever get to and for me, that is well worth the price of admission.  If you can make it, go.  If you can’t, plan on making it in 3 years.

Updated are materials that you have offered for me to help sell, not a complete list of what I normally sell.  If you have something you want to move, let me know and I can add it.  These are all prime with certs unless noted.  All new ones for the week are at the top then I move them down in the list for the next week.  Many of these are really cheap so just ask.