Opportunities Can Vanish Before You Know It

Business, Company Strategy, Economics, India, Innnovation, Knowledge management, Projects

By John Richardson

“Just when you think it is the right time to make an investment case to a board of directors, the particular opportunity you have been studying has an annoying habit of disappearing,” said a business development manager for a global polyolefins producer.

His comments reflect the increasingly complex world in which we live. Interactions between environmental pressures, shifts in government policy and changes in consumer behaviour are just some of the factors that can rapidly result in an opportunity becoming yesterday’s news.

A product might very simply also get too expensive, resulting in demand destruction.

A classic case in point about how opportunities can suddenly vanish is the ban by India’s Supreme Court from 1 March this year on gutkha – a mix of tobacco, betel and other ingredients – when it is packaged in single-serve polyethylene (PE) pouches.

This sector accounts for about 50,000 tonnes/year of PE demand in India.

The moral case for pushing sales of gutkha, a chewing tobacco, is pretty dubious to say the least.

“Apart from the obvious health risks, what is really sad is that very low-paid workers chew this stuff in order to suppress their appetites. It is cheaper than food,” added the business development manager.

So the idea behind banning plastic packaging is to reduce the nationwide scale of the industry, making supply more local and therefore harder to access, he said. PE is used to preserve the shelf-life of the tobacco, increasing availability across the country.

One might think that this is an opportunity well worth losing for the wider good.

The danger now, though, is that the tobacco test case could be used by local non-governmental organisations (NGOs) to attack more defensible areas of India’s plastic-pouch industry.

“Today it is gutkha. But there are hundreds of products packed in pouches. Tomorrow an NGO can give reference to this case and say shampoos should not be packed in pouches,” said an India-based industry source.

Pouches or sachets have grown to overtake other forms of packaging in many product segments.

Market research firm AC Nielsen estimates that sachets accounted for 74.5% of the 104,000-kilolitre Indian shampoo market in 2008, up from 71% in 2006 and 73% in 2007.

India faces a huge plastic waste-management problem, hence the concern that the NGOs will go after the wider industry.

“True, there is a big waste issue. But these sachets cost just a few cents each and with incomes still very low for most Indians, this pushes a little luxury into hundreds of millions of lives,” said a second India-based industry source.

“For the women factory workers who cannot even afford a whole bottle of shampoo, the odd sachet at the weekend with a picture of a Bollywood star on the sleeve makes them feel a little bit like that Bollywood star for a few seconds.”

If this is tugging at your heart strings, also think about the economic potential: giving India’s vast army of low earners a taste of being middle class raises aspirations, encouraging consumption growth for all manner of products made from chemicals and polymers.

India’s polyolefins industry will therefore need to battle hard and battle smart to protect the segment.

This is a good example of how rising public awareness about chemicals and polymers in general makes engagement with governments and NGOs ever-more important.

At a much more prosaic level, a product can quickly become too expensive before an investment opportunity can be pursued.

Low density PE (LDPE) is a case in point, where demand in the Indian market fell by 6% last year due its high cost, according to a local industry estimate.

The cost has soared because of lack of investment in LDPE capacity, once seen as a sunset product because of the development of linear low density PE (LLDPE) – a substitute for film applications.

LDPE has remained popular because it can be very easily processed on what is often very far from state-of-the-art machinery in Asia.

Boosting extrusion- or coatings-grade LDPE consumption has been seen in the growth in the plastic pouches we have just been talking about.

Pouches for food and non-food items are often made from multi-layer structures, including LDPE, LLDPE, metallocene LLDPE and metallised polyethylene terephthalate (PET) film.

Despite this strong source of demand, many LDPE producers have switched their plants to ethylene vinyl acetate (EVA) production, where margins have been better. A booming end-use sector for EVA is to make encapsulants for solar panels.

“Another problem is that you can only make extrusion- or coatings-grade LDPE via the autoclave process,” the business development manager added.

“The autoclave process is expensive in energy costs and is difficult to operate. Nobody, as a result, has invested in autoclave capacity for many years.”

This might logically lead to full-scale and costly research into new production processes for LDPE extrusion grade – or into other polymers that can do the same job.

But the danger is that an overall ban on plastic pouches in India drives a 500-tonne freight train through demand growth.

Such uncertainties could make incremental changes in technologies and product mixes, rather than any major research and development initiatives, the way forward.

In this ever-more complex and changing world, you would then run the risk of losing the biggest opportunities of all.

PREVIOUS POST

The C4 challenge

07/03/2011

By Malini Hariharan C4 buyers are a troubled lot. Availabilty of the product is ...

Learn more
NEXT POST

China Remains Weak On Government Tightening

10/03/2011

By John Richardson CHINA’S polyethylene (PE) market – a reasonable p...

Learn more
More posts
Coronavirus, reshoring and the polyester industry: Good luck with that
27/05/2020

By John Richardson POLITICIANS, not just including the Populist variety, are talking a lot about res...

Read
Beware of the fragile nature of the oil and petrochemical price recovery
22/05/2020

By John Richardson RECENT rises in oil and petrochemicals prices should not in my view be taken as a...

Read
China petrochemical inventories build on what could be false hopes of a V-shaped rebound
19/05/2020

By John Richardson AS PETROCHEMICALS storage space in China fills up on the hope that the country ca...

Read
Further polyethylene rate cuts seem inevitable with no certainty on who will blink first
18/05/2020

By John Richardson IT IS NOT just a razor-like focus on petrochemicals demand that will get you thro...

Read
What petrochemical companies must do to adapt to a smaller coronavirus economy
15/05/2020

By John Richardson PETROCHEMICAL companies can adapt to the coronavirus New Normal by running their ...

Read
Coronavirus and the way forward: Forecasting micro surges in petrochemicals demand
11/05/2020

By John Richardson THE MONTH of May is normally a low season for toluene di-isocyanate (TDI) demand ...

Read
Southeast Asia polyolefins demand may fall by as much as during Asian Financial Crisis
08/05/2020

By John Richardson HOW do you replace anywhere between 9% and 18% of GDP when it has virtually disap...

Read
Why Asia may win and the US lose in post-virus petchems investment world
06/05/2020

As always, these are my personal views and don’t reflect the views of ICIS By John Richardson ...

Read

Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more

Analytics

Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more