U.S. Plastics Industry faces USD 56 billion stranded asset risk by 2025, says Planet Tracker

Financial think tank reveals 89% of the country’s plastics production is increasingly threatened by storms, sea-level rise and storm surges

LONDON, 30 November 2020. As climate change continues to raise air and ocean temperatures, the frequency and severity of tropical storms are increasing. For the “Plastics Production Corridor” – a low-lying region along the Gulf of Mexico responsible for 89% and 12% of U.S. and global plastics production respectively[1] – these storms are causing devastating damage to plastics refineries and overall U.S. plastics resins capacity and production, according to the latest report by Planet Tracker.

Since 1990, 56 storms have made landfall within the Plastics Production Corridor along which 34 plastics facilities sit below, at, or slightly over 9 metres above sea level, making them vulnerable to rising sea levels due to climate change. Indeed, just between August 2020 and October 2020, five named storms made landfall along the region and were the biggest cause of decreased capacity for the key plastics resins in the olefins/polyolefins value chain of between 7% and 28%.

According to Planet Tracker, this risk is only becoming starker. Due to Hurricane Laura alone, 2020 capacity losses are expected to surpass those of both 2019 and 2018, leaving the 15 companies that own the 34 plastics facilities along the Plastics Production Corridor and their investors highly exposed to climate change related risks. Despite this, U.S. plastics capacity and production are forecast to grow to 2035, creating the growing possibility of stranded assets worth USD 56 billion by 2025 – of which USD 40 billion could be in the Plastics Production Corridor alone.

As well as the immediate risks from these frequent storms, investors in the U.S. plastics industry face other longer-term financial risks. These include:

• The declining prices and margins of U.S. plastics resins below long-term averages;
• S. production between 2020 and 2035 is likely to lag global competitors’, as Asian markets expand their plastics capacity and increase output;
• The dependency of the US industry’s expansion on exporting to countries which are themselves heading for plastic self-sufficiency, such as China;
• New construction facing delays – much of which is located in the Plastics Production Corridor – as either partners have pulled out or permits have been declined;
• Forecasts indicating that North American market demand between 2020 and 2030 will be dominated by single-use plastics.

Gabriel Thoumi, Head of the Plastics Programme at Planet Tracker, said: “With forecast sea-level rises, the US Plastics Production Corridor is facing a growing and significant  risk of stranded assets, which can be observed in decreasing capital expenditures, delayed completion of construction of polyolefins projects and the selling of assets to pay off debt. Within this risk cocktail sit myriad regulatory and infrastructure pressures that immediately endanger investor capital”.

The paper concludes with recommendations for both US plastics companies and their investors:

For companies:

• Publicly disclose their supply and demand forecasts for their facilities.

• Disclose analyses of all climate-change related risks which might impact their facilities.

For investors:

• Actively manage their investments, before short-and mid-term oversupply pressure and climate change related risks negatively impact their performance.
• Map their investments in the Plastics Production Corridor against exposure to short-term climate change related risks, for example using the SLOSH[2] and SLR[3] models.
• Encourage the companies they invest in to delay or cancel planned expansion to strategically conserve investor capital instead of risk future stranded assets.

A webinar and panel discussion on the key findings of the report will be held on 9 December at 2:00pm UK time. Participants may register here.

 

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[1] High density polyethylene (HDPE), low density polyethylene (LDPE), linear low density polyethylene (LLDPE) and polypropylene (PP).

[2] The SLOSH (Sea, Lake, and Overland Surges from Hurricanes) model is a numerical model used by NWS to compute storm surge.

[3] Sea level rise layer

Notes for editors

About Planet Tracker

Planet Tracker is a non-profit financial think tank aligning capital markets with planetary limits. It was created to investigate the risk of market failure related to environmental limits. This investigation is primarily for the investor community where environmental limits, other than climate change, are often not aligned with investor capital. Planet Tracker generates breakthrough analytics to redefine how financial and environmental data interact with the aim of changing the practices of financial decision makers to help avoid both environmental collapse and financial failure.

The goal of Plastics Tracker is to stem the flow of environmentally damaging plastics and related-products that are creating global waste and health issues by transparently mapping capital flows and influence in the sector starting from resins production through to product-use. By illuminating risks related to natural capital degradation and depletion, investors, lenders and corporate interests across the economy will be enabled to create more sustainable plastics products.

Find out more: www.planet-tracker.org

Media contact

Ronak Anand

Moorgate Communications, a Finn Partners company

ronak.anand@finnpartners.com

+44 20 7539 3578