Cloth nappies?....you have to be kidding
Source of picture: babygavin.com
By John Richardson
IT IS the biggest transformation that the global economy has probably ever undergone, resulting in numerous opportunities and challenges for the chemicals industry as emerging markets continue to boom.
The obvious opportunity is for those who can meet voracious demand growth. But where will the supply of affordable commodity chemicals and plastics come from to prevent this remarkable transformation from stalling?
Innovation will be the key at the higher end of the business, as resource constraints create the need for new technologies.
Breakthroughs will be needed, for example, to raise energy efficiency and provide clean and safe water for the tens of millions of people who every year are migrating to ever-more overcrowded cities.
But while the long-term upward trajectory seems assured as the developing world displaces the West as the main global economic driver, medium and short-term dangers abound; the most obvious one right now is a currency war.
"Look at India, China, Indonesia and Vietnam alone. Together they account for about 40% of the global population. At no previous point in history has such a large proportion of the world's population been entering the consumer economy," said a Singapore-based oil and gas consultant.
"Traditional spreadsheet-based methods of measuring growth are no longer good enough by themselves. Some amazing disruptions are taking place that you need to be aware of in order for your old models to be thrown out so you can start again."
Take India as a good example, where the local polyolefin industry is working on persuading India's railways to switch from using cotton or linen sheets and pillowcases in overnight sleeper carriages to bedding made from non-woven polypropylene (PP).
Arguments being used include reducing what must be the enormous laundry bill incurred by the state-owned Indian Railways. And as the non-woven PP sheets and pillowcases are disposed of after one use, passengers would be guaranteed a clean bed.
Furthermore, it makes it very economically viable to recycle PP-made bed clothes, as there is only one collection point: The train's terminus.
An estimated 6bn people travel in India by rail every year. Nobody has calculated how much extra PP demand this could amount to.
But it has been estimated that if India switched entirely from sacks made of jute, a natural material, to those made from raffia-grade PP, this would create the need for an extra 1m tonnes/year of the polymer.
End-users in India and other emerging markets are incredibly cost-sensitive, however.
And in many cases, these disruptive changes are not about sophisticated polymers, as in the case above with efforts to replace sacks made from jute.
The Gulf Cooperation Council (GCC) countries in the Middle East will not supply the huge new volumes required because of a shift in strategy and feedstock availability.
Producers in India, such as Reliance Industries Ltd (RIL), and those in China are in a great position to meet the demand. Sometimes they have both location and feedstock cost advantages.
In the case of RIL, it has a strong raw materials position thanks to its huge refinery capacity at Jamnagar, in India's Gujarat state.
As for China, "the focus has swung back from refinery-based petrochemicals to adding more coal-to-olefins and also coal-to-monoethylene glycol (MEG) capacity, due to the recovery in oil prices", according to a senior source with a US polyolefins major.
"We are spending a lot of time studying the economics of our coal-to-olefins process, while also evaluating the efficiency of competitors."
It might not be too far a stretch to suggest that the US might see expansions to meet the demand for commodity plastics, thanks to shale gas.
But 45-degree straight-line growth was never going to happen.
"In Singapore, Hong Kong and across Asia, the rich investors with money to spare have been pouring too much money into property and equities," continued the above source. "They have been followed by those who are now highly leveraged, who have borrowed at extremely low interest rates."
Property-market restrictions in Singapore and China have already slowed price rises, with some early signs of reductions in China.
Inflation, however, was still a big problem in Asia, the source added.
"Official inflation rates don't always reflect what's really happening because baskets of goods included in measures of inflation haven't been adapted to reflect changes in economies.
"Governments across Asia might have to raise interest rates and if they get the timing and scale of the rate rises wrong, this could cause investor panic. Other policy decisions are possible and these carry equal risk.
"The temptation may instead be to carry on with ultra-loose monetary policy in order to prevent currencies from rising too much, as everyone struggles to deal with the weak US dollar. This will cause bubbles to inflate even more.
"A full-scale currency war is my biggest fear, accompanied by increased trade protectionism - for instance, the recent US House of Representatives vote on the Yuan. This vote sends an important signal, even if it doesn't get past the Senate or a veto by the president."
The dreaded double-dip recession might be almost upon us, unless we are lucky enough to escape for now thanks to an exceptional amount of inter-governmental coordination and compromise.
Whatever the number and the extent of the dips in growth over the coming decades, though, the overall dynamics seem irreversible.
One Singapore-based PP sales executive put it very neatly when he said: "Once you've got used to using stuff made from chemicals and plastics, you are not going to turn back, no matter what your economic problems.
"If you have young children, why on earth would you want to switch back to using cloth diapers from disposal diapers?"