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E-commerce, bags to drive Asian plastics demand growth through 2017

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Asian shoppers' fondness for buying on the internet along with the region's steady economic growth should boost Asia's plastics demand for the next two years.

[SINGAPORE] Asian shoppers' fondness for buying on the internet along with the region's steady economic growth should boost Asia's plastics demand for the next two years.

Asia's e-commerce market may expand by more than 30 per cent to an average per year of US$960 billion in 2017 and 2018, from an average per year of US$730 billion a year in 2015 and 2016, according to business consultants Frost & Sullivan.

This will open up demand for polyethylene, a plastic mainly used in packaging materials like films, grocery bags and bubble wraps. Asia's demand for polyethylene is expected to reach 41 million tonnes in 2017, up 5.1 per cent from 2016, according to an outlook from IHS Markit.

Asia's surging plastics demand will defy a broader downturn in the petrochemicals sector and will mitigate "go-green" efforts that are urging bans on plastic packaging.

A continued upswing in Chinese imports will also drive plastics demand, helping to maintain petrochemical margins through at least 2018.

"Products that are manufactured are already packaged but when sold through e-commerce, they need to be individually re-packed and shrink-wrapped for transportation to end buyers," said JP Nah, director of polyolefins at IHS Markit Chemical.

"The increase in such 'secondary packaging' consumption has actually offset some of the demand lost due to the 'Green' issues such as the banning of plastic carrier-bags or reduction of polyethylene packaging products," he added.

Internet shopping in Asia, particularly in China, has expanded even as overall economic growth has slowed. China's e-commerce giant Alibaba reported second quarter sales surged 59 per cent from a year ago, the most since its initial public offering in 2014.

E-commerce is only part of the equation. The steady economic growth of countries such as Indonesia, Vietnam and the Philippines has boosted the every day purchase of plastic items at groceries and drug stores which leads to the solid consumption of plastic bags.

Frost & Sullivan estimates that Asia's polyethylene demand would be about 45 million to 46 million tonnes in 2016, accounting for half the world's consumption, said Nikhil Vallabhan, senior consultant of Frost & Sullivan, Asia Pacific.

Of this, the countries of the Association of Southeast Asian Nations will account for up to 20 per cent of the total Asian demand and India will account for about 10 per cent of Asian polyethylene demand this year.

Asia will account for about 50 per cent of the world's consumption volume of about 96 million tonnes in 2017, said Mr Vallabhan.

Still, analysts caution that growth in 2017 will be slower than 2016 at 5.1 per cent versus 5.6 per cent. That's because of a weaker overall economic outlook and higher supplies which would prompt manufacturers to keep their polyethylene inventories low.

Polyethylene margins would also come off as competition between sellers intensifies, and IHS expects margins to peak this year at US$400 to US$450 a tonne.

"We think the air will come out of the balloon in 2017 but the year will not be a disaster, more a transition from peak in 2015/2016 to trough (in 2018/2019)," said Vincent Sinclair, Head of Asia Pacific Petrochemicals Research of Wood Mackenzie of the polyethylene industry.

"There's more capacity addition than probable demand growth globally but the imbalance in Asia is not disturbing and is rather brief," he added.

China and India, much as in oil and energy markets, will be the demand drivers to keep the polyethylene market balanced going forward.

India, however, could grow at a faster pace than China over the next five to six years, said Frost and Sullivan's Mr Vallabhan although China will remain the top consumer in terms of volume.