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Market analysis at the beginning of phase 2 and some strategies to start again

Updated: Jul 7, 2020

The Covid-19 emergency is putting the global economy in trouble. These days we are getting ready for the beginning of the recovery phase (or phase 2). It is divided into three main moments which will allow the progressive reopening of production and commercial activities. We propose here a brief market analysis of the plastics sector.

How have prices changed?

In recent weeks, there has been a sharp drop in the price of oil due to the combined action of lower market demand and the advent of a geopolitical crisis. As with crude oil, plastics prices have also undergone some considerable changes. Specifically, polypropylene (abbreviated as PP) has undergone a drop of around € 50/70 per ton. This means about 5/7 cents less per kilogram. Likewise, the prices of polyethylene (PE) and polystyrene (PST) have fallen by around € 100 per ton (-10 cents per kilogram). The data relating to two other polymers are different: in fact, the prices of polycarbonate (PC) and polyvinylchloride (PVC) have remained stable. However, they could also decrease in the short term, if the demand for these products does not increase.

What is the availability of materials?

In this challenging period, many companies have ceased or at least reduced production. This results in less plastic waste available to be recycled and sold. Furthermore, for the same reason, those industries forced to lockdown have stopped buying new plastics, decreasing demand. In summary, the current availability of material is somewhat reduced. Thus, how come the prices have gone down? If on the one hand, the lower supply of plastic available on the market has pushed prices upwards; on the other hand, an even lower demand made the final balance negative.

Another aspect to consider is that this shortage of plastic waste also has a strong impact on companies that deal with disposal. Many cement factories and incinerators normally use plastic waste respectively to produce new material and to generate energy. Currently, due to low demand, they are forced to lower their disposal prices. The risk is that they will not find materials to work with. These include plastic and rubber (CER code 191204), combustible waste (CER code 191210), and other mechanical treatment waste (CER code 191212).

Are the main sectors that use plastic working?

Many of the sectors that normally work with plastic in Italy are now in a stalemate. We are going to list and briefly analyze some of them below.

  • The automotive industry is currently stopped; factories are reopening on May 4th. Estimates record an 86% drop in car registrations in Italy compared to March 2019. In Europe, March car registrations differ by 52% compared to the previous year.

  • The construction sector, despite the stop of the last few weeks, is now ready to restart slowly. As established by the Prime Minister with the latest decree of April 26, recovery in two stages: from April 27, the works for prisons, schools, public housing and hydrogeological instability start again; from 4 May all public and private construction sites will be able to reopen.

  • The food industry has always remained active during this period, supplying essential goods.

  • The medical industry has been authorized to work by way of derogation, as a producer of functional and essential goods for the healthcare sector.

  • As regards the textile, manufacturing and furniture sectors, they were stuck with production, which will start again on May 4th. Sales have only reduced to those online and will be able to resume in stores from May 18, as per decree.

What is going on in China during phase 2 and what strategies can be replicated in Italy?

China, where it all started in January, is ahead of Italy, particularly in Wuhan, the outbreak of Chinese contagion. The city of Hubei eased the lockdown on April 8, after 76 days. Three months after the outbreak of the Covid-19 epidemic in China, however, we can begin to understand what has worked so far. And what, instead, needs to be improved. The consulting firm Arthur D. Little did so, interviewing 25 CEOs of as many companies based in the Far East and in Italy, including A2A, Fastweb, Nissan, Aeroporti di Roma and Enav, just to name a few. The aim was to understand how they managed the first reaction to the epidemic and to the lockdown that countries have adopted to contain the spread of the infection, and what they are doing to prepare the ground for the restart. Trying to take advantage of what has been learned during the current crisis. The best response to the epidemic came from the Far East, where businesses - having already experienced the Sars epidemic on the frontline - were better prepared. All CEOs interviewed agree that, in this situation, those who were able to make decisions and act promptly reacted better. Besides, the report highlights the importance assumed by the company's internal and external communication. Internally, transparently involving the staff, and externally, communicating with suppliers and local authorities.

A positive and flexible attitude is needed for a restart. The pandemic revealed the importance in the medium-long term of the challenge for businesses in digitization, through AI, blockchain and robotics. These innovations are becoming increasingly useful to companies, not only because they often reduce costs, but also because they allow the development of activities that can generate profits. For example, through the creation of new marketplaces, or by exploiting the intersection of commercial and management data to obtain strategic insights.



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