Ratings agency Fitch expects plastic recycling to grow, but also pulp and paper to benefit from changing business models

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China recycling
A person collecting waste in China

Ratings agency Fitch has said that new laws and regulations around the world will still see growth in plastic consumption, but also more recycling of the material.

It also expects to see more growth in use of pulp and paper packaging to replace plastics.

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In a report, Efforts to Reduce Plastic Waste Could Drive Long-Term Shifts in Business Models, Fitch said that regulations such as the bans on recycled plastic imports such as those implemented by China and some South East Asian countries were unlikely to have an impact on plastic consumption in the short-term. Indeed, it actually expects plastic consumption to grow, especially in Asia.

Fitch Ratings research associate and report author Jingwei Jia said: “Regulations have limited impact on plastic production in the short term, with societal awareness gradually shifting towards sustainability.

“Plastic demand will continue to grow, particularly in emerging markets. Improving plastics recyclability will pose long-term risks to petrochemical demand by 2050.”

Fitch argues in the report that because the global trade flow of waste plastics fell by 45.5% in 2018 as a result of the China ban, that nation states are expected to make efforts to reduce plastic consumption and invest in recycling and waste management and facilities, plus take a more circular approach to consumption and production.

The ratings agency notes that the Covid pandemic has led to an increase of plastic packaging for food, cleaning and hygiene products in particular.

Despite this, it adds that the paper and pulp industry has benefitted from a shift to sustainable packaging.

The report says: “More innovative companies are working on creating lighter and stronger packaging board that offers a lower carbon footprint, or developing flexible paper-based packaging with water-based coatings that can act as barriers for vapour, oxygen and oil to replace plastics in packaging.

“This increase in demand has positively affected some entities, although the near-term credit impact is limited by the difficulty in finding cost-effective substitutes to replace plastic packaging in the near term.”

Fitch anticipates that overall plastic consumption growth will occur in the medium term, especially in emerging economies with limited plastic recycling infrastructure.

However, in more developed economies, it expects chemical recycling of plastics to have a greater role.

The report notes: “The plastics and chemicals created through chemical recycling are of higher quality than those created through mechanical recycling, but also more energy-intensive,with greater greenhouse gas emissions.

“However, chemical recycling is fairly untested on a large-scale economic basis despite its benefits, and companies will need to invest capital to create facilities capable of doing so.

“UBS research expects chemical recycling not to be economical until 2030.Fitch believes the current recycling solutions are not available at large-enough scale and are not economically viable.

“It will take long-term investment to develop and improve recycling capacities gradually. A number of governments have targeted infrastructure investment through policies supporting chemical recycling, such as the EU.

“Fitch views sustainability issues as an opportunity for the plastic industry rather than a threat. Downstream consumption sectors in particular, such as packaging and construction, now have the opportunity to innovate their product portfolios.”

The report can be viewed here https://www.fitchratings.com/research/corporate-finance/efforts-to-reduce-plastic-waste-could-drive-long-term-shifts-in-business-models-19-04-2021

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