Insight | Expansion of Degradable Plastic Market, Continued Policy Support

Data shows that China's cumulative production of plastic products in 2020 was 81.84 million tons, most of which were disposable plastic products. The degradation time of these plastic products may be as long as 500 years, and the difficulty of recycling and reuse is high, causing immeasurable harm to the environment.
 
01 Degradable plastics have a large market space
Degradable plastics are divided into biobased plastics and petroleum based plastics
Degradable plastics refer to a type of plastic whose various properties meet the requirements for use, remain unchanged during the shelf life, and can degrade into harmless substances in the natural environment after use. It can be classified into biobased biodegradable plastics and petroleum based biodegradable materials according to raw materials. Biobased biodegradable plastics include PLA, PHA, and PBS, while petroleum based biodegradable materials include PBAT and PCL.
 
Structure of biodegradable plastics industry and downstream demand distribution
Starch mixtures, with their advantages of wide raw material sources and low prices, account for the highest proportion in the biodegradable plastic industry structure, up to 32%. However, starch based plastics have many defects that limit their application scope. PLA and PBAT are the most promising biodegradable plastics. Biodegradable plastics are mainly used in soft packaging, hard packaging, consumer goods, agriculture, horticulture and other fields, with the packaging field accounting for the largest proportion, reaching 52%.
 
Global plastic production shows an upward trend
The global plastic production has been increasing year by year, with a growth rate of 3% -4% from 2011 to 2018. In 2019, the chemical industry was sluggish, with a slight decrease in growth rate to 2.51%. The global plastic production in 2019 was 368 million tons, with a compound annual growth rate of 3.94% from 2009 to 2019. In 2020, affected by the COVID-19, the global plastic output will be 367 million tons, a slight decrease of 0.27% compared with 2019. It is expected that with the gradual restoration of normal socio-economic and industrial production in the post pandemic era, global plastic production will continue to grow.
 
The continuous increase in plastic usage is driving the development of biodegradable plastics
China is the world's largest producer and consumer of plastics. Plastic is a high molecular weight compound formed by monomer polymerization or reactive polymerization. It has a wide range of applications and is used in various aspects of life, such as food packaging, express boxes, plastic lunch boxes, pesticide plastic films, etc.
 
The consumption of plastic products in supermarkets in China from 2015 to 2020 was 6-7 million tons, and the use of agricultural film was over 2 million tons. In recent years, China's Internet economy has developed rapidly, expanding the development of the takeaway industry and express delivery industry, and the demand for plastic products in China has continued to increase. In 2011, the total transaction volume of food delivery in China was only 21.68 billion yuan, which increased to 664.62 billion yuan in 2020, with a compound annual growth rate of 46.27% from 2011 to 2020.
 
Low market share of biodegradable plastics
At present, fossil derived plastics have the highest market share on the market, accounting for 75%, while biodegradable plastics only account for 1%. There is still significant room for improvement in their market share. Western Europe has the highest consumption of biodegradable plastics in the world. In the future, with increased policies, there is great potential for the growth of biodegradable plastics in China.
 
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02 Policy as a driving force for industry development
The new national plastic ban policy was introduced in 2020
On January 16, 2020, the "Opinions on Further Strengthening the Control of Plastic Pollution" clarified the schedule for the ban on plastics, requiring that the production, sale, and use of some plastic products be banned or restricted in certain regions and fields by 2020. In July 2020, the National Development and Reform Commission and other departments issued a notice on solidly promoting the control of plastic pollution, requiring all regions to introduce provincial-level implementation plans by mid August to ensure the timely completion of phased targets by the end of 2020. During the two sessions, NPC deputies also called for the vigorous promotion of biodegradable materials to replace plastics. The continuous increase in policies will accelerate the market share of biodegradable plastics.
 
It is not yet clear whether the EU prohibits the use of PBAT
According to the Directive (EU) 2019/904 of the European Parliament and Council of 5 June 2019 on reducing the environmental impact of certain plastic products, the European Commission has issued guidelines on disposable plastic products. On May 31, 2021, the European Commission issued the final version of the "Guidelines for Disposable Plastics", which prohibits all oxidative degradable plastics. The guidelines came into effect on July 3, 2021. According to guidelines and other relevant documents, the plastics prohibited by the EU are mainly oxidative degradable plastics, including non biodegradable oxidative degradable plastics and biodegradable oxidative degradable plastics.
 
Oxidative degradation of plastics is achieved by adding degradation additives to traditional plastics, and the degradation conditions are relatively harsh, making it difficult to occur under natural conditions. PLA belongs to bio based biodegradable plastics and will not be affected by EU directives in the near future; PBAT belongs to petroleum based biodegradable plastics and needs to be oxidized and degraded under composting conditions. However, due to the rapid development of the biodegradable plastics field, the relevant concepts are difficult to define. The European Commission plans to formulate a policy framework for the use of biodegradable plastics and compostable plastics in 2022. At that time, the use of PBAT will be evaluated and standards will be determined. The degradability of plastics determines their lifecycle, and the speed and difficulty of degradation are crucial for the true implementation of "degradability".
 
Forecast of domestic demand for biodegradable plastics under the promotion of plastic ban policy
According to data from Zhiyan Consulting, the demand for biodegradable plastics in China was 220000 tons in 2012 and increased to 520000 tons in 2019, accounting for only 4.6% of the global total. With the implementation of the plastic ban policy, biodegradable plastics have great potential for development in China. Domestic biodegradable plastics are mainly used in the fields of food delivery packaging, express delivery packaging, supermarket shopping bags, and agricultural film. With the gradual introduction of plastic ban measures by the country and various provinces and cities in 2020, we expect that by 2025, the demand for biodegradable plastics in China can increase to 4.1523 million tons.
 
03 Competitive Landscape
Polylactic acid (PLA) - a novel biobased material
Polylactic acid (PLA) is a new type of biobased material, which is derived from renewable plant resources such as corn and wheat. The discarded polylactic acid can be completely decomposed into carbon dioxide and water, with superior biodegradability and biocompatibility, and has broad application prospects in biopharmaceutical polymers, packaging, and agricultural film.
 
Lactide: a key material in two-step process
Lactide is a key intermediate product in the two-step preparation of polylactic acid. Currently, only three companies in the world, Natureworks from the United States, Corbion from the Netherlands, and Haizheng from Zhejiang, have the production process for lactide. The propylene ester used by domestic enterprises in the production of PLA has long relied on imports, resulting in high costs and limiting the large-scale production of PLA in China. Therefore, domestic PLA production enterprises actively cooperate with universities and research institutions to urgently solve the problem of import substitution.
 
Jindan Technology has collaborated with Nanjing University and successfully developed a unique core process technology for producing lactide, which has been industrialized and applied. Currently, Jindan Technology has the ability to independently industrialize the production of lactide.
 
Domestic PLA enterprises have low production capacity and great development potential
The global PLA production capacity is approximately 615500 tons. Western Europe and the United States are the main consumer markets for PLA, and the largest PLA production capacity in the world is Nature Works in the United States, with an annual production capacity of 160000 tons, far exceeding domestic polylactic acid production enterprises. The current production capacity of PLA in China is estimated to be around 315000 tons. Among them, the ones with larger production scales are Fengyuan in Anhui (100000 tons/year), Tianren in Longdu, Henan (50000 tons/year), and YunYoucheng Biotechnology in Jiangsu (50000 tons/year).
 
The demand for PLA is increasing year by year
The demand for polylactic acid in China was 109000 tons in 2017 and 219900 tons in 2020, with a compound annual growth rate of 26.36% from 2017 to 2020. With the ban on plastic and the promotion of biodegradable plastics, it is expected that the demand for PLA will continue to increase.
 
A large amount of PLA in China relies on imports
China's polylactic acid industry started relatively late. With the increasing demand for polylactic acid in the country, the domestic production of polylactic acid falls short of the demand, which has led to a continuous increase in the import volume of PLA.
 
The Asia Pacific region is the fastest-growing market for PLA, and with the implementation of the domestic plastic ban, the market space for PLA will accelerate growth. Domestic enterprises are increasing their layout in the polylactic acid market. Jindan Technology is the largest lactic acid manufacturing enterprise in China. Its "Annual Production of 10000 Tons of Polylactic Acid Biodegradable New Materials" project was originally scheduled to start production in April 2021. However, due to factors such as the epidemic and tight production capacity of high-purity lactic acid, the company has decided to adjust the implementation schedule. As of the disclosure of the company's 2021 semi annual report, the company has not yet started the construction of the project, and the implementation plan is still under discussion; The "100000 ton polylactic acid project" is planned to start construction in the second half of 2021, with a construction period of 18-24 months.
 
PBAT petroleum based biodegradable film
PBAT is formed by direct esterification and melt condensation of adipic acid (AA), terephthalic acid (PTA), and 1,4-butanediol (BDO) under catalytic action. PBAT has good ductility, fracture elongation, heat resistance, and impact resistance, as well as excellent biodegradability. Widely used in plastic packaging film, agricultural film and other film materials.
 
Domestic PBAT raw materials have a wide range of sources, and the cost advantage is expected to be further highlighted
PBAT petroleum based and coal based raw materials are relatively abundant, with a wide range of sources and much lower costs than PLA, making them easier to promote. The raw material cost of PBAT fluctuates between 6000 yuan/ton and 9000 yuan/ton, and its raw material price is related to the trend of oil price changes. The production scale of PBAT is expected to further expand, reducing production costs.
 
There is great potential for the development of domestic PBAT production capacity
The two companies with the largest PBAT production capacity in the world are Novamont in Italy (100000 tons/year) and BASF in Germany (74000 tons/year). At present, the total production capacity of PBAT in China has reached 341000 tons per year, among which the larger production scales are Lanshan Tunhe (128000 tons per year), Jinfa Technology (60000 tons per year), and Zhuhai Wantong (60000 tons per year).
 
Domestic PBAT consumption is increasing year by year
China's PBAT production is currently in a stage of rapid development. In 2014, PBAT resin production was 17800 tons, which increased to 39200 tons in 2019, with a compound annual growth rate of 17.10% from 2014 to 2019. In 2011, the consumption of PBAT resin in China was 11200 tons, which increased to 38800 tons in 2019. The compound annual growth rate from 2011 to 2019 was 16.80%. With the promotion of environmental protection requirements and policies, it is expected that the consumption will grow rapidly.