Degradable plastics, making a profit at a loss?

Degradable plastics were once the most beautiful boy in early 2021, and heroes from all walks of life flocked to it
.
However, one year later, the market space for degradable plastics is still so large, but the production capacity has doubled many times
.
Companies in the industry wink at people and survive in a humble way, and the concept of degradable plastics has changed from a glass of spirits to a glass of water
.
The beginning is the end
.

1.
At the expense of long-term stability, the application space of degradable plastics is limited

As the saying goes, you can't have both.
Compared with non-degradable plastics, degradable plastics are expected to degrade faster after being discarded
.
As a price, the long-term stability of degradable plastics is poor, so it cannot completely replace the status of non-degradable plastics, and cannot serve as engineering plastics and modified plastics
.
It can only be used in packaging, textile, agricultural film, tableware and other scenarios that are discarded after use
.
In fact, the market space for this part is extremely small, and it is estimated that degradable plastics only account for 1-3% of all plastic consumption
.
The table below shows the application scenarios of degradable plastics in 2020
.

Source: Public Information

According to a Haitong Securities research report, by 2025, the consumption of non-degradable plastics in supermarkets, express delivery, and takeaways will be reduced by about 100,000 tons, 1.
6 million tons, and 300,000 tons, respectively.
10,000 tons;

According to a Huaan Securities research report, by 2025, the demand for degradable plastics in my country is expected to be 2.
38 million tons, and the market size will reach 47.
7 billion yuan; by 2030, the expected demand is 4.
28 million tons, and the market size will reach 85.
5 billion yuan;

Soochow Securities believes that the demand space for degradable plastics in four fields including express packaging, disposable plastic tableware, plastic shopping bags and agricultural mulch film will form a total market space of about 2.
5 million tons in 2025, and the market size will reach 50 billion yuan.
about;

According to the 2020 semi-annual report of Kingfa Technology, the market size of degradable plastics is expected to be "million tons" in 2025
.
This market space includes other competing materials: such as paper products, wood products, bamboo products, recyclable plastics, etc.
The actual market space for degradable plastics may be even smaller
.

At the same time, the market space of non-degradable plastics such as polyethylene and polypropylene is about 100 million tons.
Compared with them, degradable plastics are like a drop in the bucket
.
In addition, since the cost of non-degradable plastics is only 1/3 of that of degradable plastics, it is almost a dream for degradable plastics to achieve the same cost, and the space for imagination in the future is also very limited.
Application scenarios such as mulch film do not yet have commercial prospects for widespread promotion.

.
Some degradable plastic varieties, such as PLA and PHA, can be used in feed, medical equipment and other fields, but the cost is high, the business model is unclear, and they cannot compete with existing materials, and their market space can be ignored
.

Some readers may ask, can we improve the performance of degradable plastics through modification? The answer is basically no
.
Degradable plastics naturally have many problems such as poor strength, not durable, not resistant to extreme environments, and water absorption
.
"Degradable" itself is a manifestation of material instability, so the performance cannot be improved through process improvement, and it cannot be used in a broader market that originally acts on polyethylene, polypropylene and other materials
.

2.
Crazy involution, it only takes one year to go from short supply to bad street

The main varieties of degradable plastics include PLA (polylactic acid), PBAT (poly(butylene terephthalate-co-adipate), PHA (polyhydroxyalkanoate), etc.
Degradable plastics are mainly the first two
.
The following table shows the price, gross profit margin and capacity of these three materials
.

Data source: Compiled from public information
.
Prices, costs and gross margins are based on quoted company data in the industry
.
Current capacity and new capacity are based on Huaan Securities research report
.

In January 2020, the Ministry of Ecology and Environmental Protection issued the strongest "plastic ban" in history, which will be implemented from the end of 2020
.
Affected by this, at the beginning of 2021, there is indeed a shortage of degradable plastics.
The price of raw materials has risen, and degradable plastics have really caught fire
.
PHA, the star of degradable plastics, is widely favored by investment institutions because it also superimposes the concept of synthetic biology
.
Seeing this grand occasion, various listed companies entered the market one after another, planned a large number of new production capacity, and laid out a large number of intermediate production capacity
.
According to incomplete statistics, by 2025, the total production capacity of degradable plastics will reach 8 million tons, which is 3-4 times the actual demand
.

Greed will eventually make the industry fearful
.

In addition, PLA, PBAT and PHA have no bargaining power for upstream and downstream, and the cost of raw materials accounts for a high proportion
.
The raw material of PLA is corn, the raw material of PBAT is oil and coal, and the raw material of PHA is glucose.
The cost of raw materials accounts for more than half of its total cost, and the raw material cost of PBAT is even as high as 90%
.
For degradable plastics, no amount of effort can make up for the lack of talent
.
Manufacturing costs and labor costs can be reduced through industrial optimization, but the cost of raw materials is "real damage" and cannot be reduced through our own efforts
.

Degradable plastics are a purely cost-sensitive industry
.
Under the condition of satisfying basic performance, downstream customers only care about its price
.
For example, the straw in a milk tea shop is made of degradable plastic, but it is just a straw.
Users do not care about the material and brand of the straw, and the use of high-end materials cannot improve the quality of milk tea, and degradable plastics are not bargained for downstream.
rights
.

The crazy expansion of production, superimposed on the humble industry status, overdrafted the profits of degradable plastics
.
While degradable plastics are a hot topic in 2021, their actual profitability is far below the chemical industry average
.
The following table shows the gross profit margin of listed companies in the degradable plastics industry in Q1 in 2021 and 2022.
Degradable plastics can only make money at a loss, with feelings but no banknotes
.

Data source: Wind

Above: Gross profit margins in 2021 are positioned as far as possible in products related to degradable plastics
.
Due to the limited information disclosed in the quarterly report, the Q1 gross profit margin in 2021 is the company's comprehensive gross profit margin

3.
"Degradable" may be just a psychological comfort

The study found that degradable plastics may not degrade
.

Even for certified degradable plastics, the degradation reaction needs to meet certain conditions to occur, and the degradation rate will be affected by oxygen, humidity, temperature, specific microorganisms, and so on
.
For example, PLA, one of the main degradable plastic species, needs to reach the temperature and humidity conditions of industrial composting to effectively degrade, and will not complete biodegradation in other lower-temperature environments
.
Another example is another major material, PBAT, which has a very low degradation efficiency in water.
Some experiments have found that its degradation rate is less than 2% within 365 days of degradation, which means that it can be used in water environments such as rivers and oceans.
Non-degradable plastics the same, with harmful environmental impacts
.

In theory, degradable plastics can indeed be effectively degraded if they are adequately sorted and composted
.
However, due to inconsistent standards for degradable plastics, high management costs and high operating costs, such an idea is almost impossible to implement
.
With the exception of a few cities, such as Shanghai, the waste classification in other cities is lackluster
.
Even in Shanghai, degradable plastics are not adequately composted, and these materials are incinerated and buried along with other garbage, and "degradable" is so pale
.

Controversy and discussions have also cooled policy
.
In September 2021, in the "14th Five-Year Plan" Action Plan for Plastic Pollution Control issued by the National Development and Reform Commission and the Ministry of Ecology and Environment, the space involving biodegradable plastics was significantly reduced, and the policy did not require the promotion of such products, but instead emphasized It is necessary to study the impact of degradable plastics, regulate the application field, and clearly propose to prevent the blind expansion of production capacity
.
Degradable plastic, no more heat
.

Many changes are demand-driven, such as medical aesthetics, and such changes are often strong and continuous
.
But unfortunately, degradable plastics are not of this type
.
Even more unfortunate is that degradable plastics lack the advantages of the industrial chain, lack of broad application scenarios, and superimpose the capacity expansion on the supply side
.

2021 is still the first year of biodegradable plastics.
The debut is the trough, and the road ahead will only get more and more difficult
.

Note: This article does not constitute any investment advice
.
The stock market is risky, and you need to be cautious when entering the market
.
Without buying and selling, there is no harm
.