US Plastics Industry Faces US$56bn Stranded Asset Risk by 2025

By Gabriel Thoumi CFA, Head of the Plastics Programme at Planet Tracker.

As climate change continues to increase 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 – these storms are causing devastating damage to plastics refineries, and overall U.S. plastics resins capacity and production, according to the latest report by financial think tank Planet Tracker.

• Since 1990, 56 storms have landed 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 climate risk.

• Indeed, just between August 2020 and October 2020, five named storms made landfall along the region and were the biggest contributor to decreased capacity for the key plastics resins in the olefins/polyolefins value chain by 7% to 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 (including Chevron Corp., Dow, ExxonMobil and Phillips 66) and their investors, highly exposed to climate risks.

• Despite this, U.S. plastics capacity and production are forecast to grow to 2035, creating the growing possibility of stranded assets worth US$56 billion by 2025 – of which US$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 faces other longer-term financial risks including declining prices and margins of U.S. plastics resins, growing competition from Asian markets and construction delays.

• The paper concludes with recommendations for both US plastics companies, to disclose their supply and demand forecasts as well as their climate-related risks, and their investors, to actively manage their investments and encourage companies they invest in to strategically conserve investor capital instead of risk future stranded assets.

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