Market outlook: Circular economy a blurry concept – BASF CEO

The circular economy encouraged by the EU will need a more unified approach so countries can rally behind a system which has avoiding waste, rather than recycling it, as a paramount principle, the CEO of the German chemical major BASF said on 27 February.

Kurt Bock added that while Germany is well advanced in recycling rates, other countries lag far behind, making a unified approach impossible. The EU’s executive body, the European Commission, proposed in January ambitious targets for all packaging to be recyclable by 2030, with 55% of them being actually recycled, something which would fully affect polymers producers.

BASF’s CEO said the company takes the concept of a circular economy as a “challenge”, but it could also end up being an advantage against chemical products in other world regions.

“The circular economy has become a big topic, [but first we need] an understanding of what it means. On recycling rates, for example, most of our garbage [Germany’s] is recycled but other countries in Europe are far behind, and the systems to collect and separate garbage are not what they should be,” said Bock.

“The circular economy is about recycling but also about avoiding waste in the first instance. We take this as a challenge, but the most likely outcome is that this will become a competitive advantage as of when it [circular economy] becomes more tangible.”

A key issue for the petrochemical industry will be the feedstocks it uses.

By using crude oil- and natural gas-based feedstocks, the circularity of many of the products will become nearly impossible, as there are certain applications which are hardly recyclable – polystyrene (PS) and the billions of cups and trays used for food products would particularly be in the eye of the storm, for example.

Bock said that BASF uses around 5% of renewable feedstocks in its raw materials mix, like palm oil which the company uses to produce disinfectants, but he went on to say that even the term “renewable” would come into discussion.

RENEWABLE VERSUS SUSTAINABLE

“At the end of the day it [conceptions of what renewables are] is probably different than what people think as renewables, because renewable feedstocks are not always sustainable, like palm oil. While some of it is sustainable, there is a challenge there: there is not enough [sustainable] palm oil available,” the CEO said.

Therefore, he conceded that while the circular economy could present a challenge for crude oil and natural gas, in the short term they are still the “most attractive” raw materials and are likely to remain so for the petrochemical industry for decades to come.

Bock said that the 5% share of renewable feedstocks currently used by BASF will “most likely” go up in coming years, although he would not commit to a precise figure.

As another example, Bock said that bioplastics give way to a debate about how sustainable they are because while the raw materials could be renewable, specifically mentioning sugar cane, other knock-on effects could affect other economic sectors or even people’s livelihoods.

“Look at sugar cane in Brazil,” he said. Sugar cane is used to produce ethanol, which is dehydrated to make ethylene, which can be used to produce polyethylene (PE). “But we don’t consider this very sexy,” he said. Another example came from plastic bags, an “obsession” in Germany, according to Bock. He said that, at times, it could be more sustainable to produce plastics bags than paper ones, once again due to the knock-on effects the latter could have in the environment.

ELECTRIC VEHICLE CHALLENGES

On the potential electrification of transport, BASF’s CEO said that electric vehicles (EV) hurdles would still outweight benefits for more than a decade.

The prophets of electric vehicles (EVs) who think the end of combustion engines is approaching should be more realistic in their assumptions and recognise the costs of electric transport still largely outweigh its benefits, he said.

Bock added that production of EVs is a “hugely capital intensive” industry and manufacturers are still years away from making profits in that sector.

He added that it would be somehow counterproductive for countries like China to expand their fleet of EVs if they are going to be powered by electricity produced out of coal thermal stations, which are big emitters of carbon dioxide (CO2).

“Transport will be electrified [at some point], but we need to be realistic about the assumptions. It’s a hugely capital-intensive industry, and at this point nobody is making real, good money on the electrical mobility value chain: everybody believes the other side is making tons of money,” said Bock.

“There are sustainability issues, when we talk about mining for example, and there are technological challenges in terms of the batteries’ performance as well as vehicles themselves. There are also acceptance issues and there are infrastructure issues.”

According to Bock, combustion engines will still dominate the market in 10 years, adding that he would not venture into predicting what mobility will look like in 30 or 40 years.

While BASF has made inroads into the batteries industry by forming a joint venture with Norilsik Nickel for the production of cathode, the CEO wanted to emphasise that BASF will not become a producer of batteries but rather a provider of chemicals to manufacture them.

“[This is a] fascinating, challenging and demanding industry. There is this hype about electrical mobility and the prospect EVs going forward, as well as the concept of shared mobility. [However, there is] high uncertainty about the underlying trend, about the technology and about consumers’ acceptance,” he said.

“There are also recycling issues [with the batteries] and environmental challenges in regards to mining in the Democratic Republic of Congo. Many components of electric vehicles still present many challenges to make them sustainable.”

He said that production of batteries is a capital-intensive process for relatively low volumes, adding that while EVs had become an attractive proposition years ago with high crude oil prices, since 2014 and the halving in values the economic prospects of transport’s electrification had become less clear.

“I hadn’t event mentioned that because of the euphoria about mobility electrification.”

ANALYSTS BEG TO DIFFER

The BASF CEO’s views contradict those of the most optimistic analysts.

A note published in February by chemical analysts at Bernstein Research projected that by 2029 it would be “game over” for combustion engines.

However, Bock said: “In 2030 most cars will have combustion engines and actually a good combustion engine is more sustainable than a battery-driven car, especially in China because the country produces its electricity with coal, which is very CO2-intensive.”

Expanding on his views about recycling and how the EU still has a long way to go when it comes to a unified approach to the issue, Bock said that BASF is “absolutely not worried” about the potential disruption that new regulations could bring to its operations.

CHEMICALS WILL STILL GROW

“There is absolutely no need to worry. The chemical industry will continue to grow due to underlying demand in most parts of the world which want to have better living standards: for that you need better chemistry and better products,” said Bock.

Asked specifically about products like styrenics, which recyclability is very difficult, Bock conceded that “some products will come under pressure” in a more circular economy where products and materials are reused, but he said that “recycling itself will not replace” the need for more materials on the back of increasing demand.

“There is large underlying demand [for products produced by the chemical industry]. Doomed scenarios [predicted by some] will not materialise due to the need for new materials,” he said. The challenge for the petrochemical industry may come in coming decades, however, from the replacement of crude oil- and natural gas-based feedstocks, which down the line can make reuse difficult. However, he warned about putting in the same bag products which can be seen as renewable, but in truth are not sustainable at all, specifically mentioning sugar cane or palm oil.

“Sugar cane or palm oil are not sustainable. It depends on how you do it [work with that raw material] but they are not overly sustainable, while oil and gas are hugely sustainable because you use basically 99% of the energy content of the raw materials,” said Bock.

“If you burn fuel in a combustion engine, it is not too efficient, but if you use it for chemistry it is hugely efficient.”