Rethinking the future of plastics in the GCCTheo Jan Simons

2McKinsey & Company

Contents

Future for plastics in the GCC

Enter the Circular Economy

I have word for you "Plastics"

3McKinsey & Company

Key challenges and disruptions for the Petrochemical industry through 2030

1

Beyond the current good times –what is the outlook on long term industry profitability?

Petrochemicals (Plastics) are key

driver of carbon input and outputs

– how to transition to a circular economy?

The potential impact of disruptive technologies on

markets and operating models?

Navigating in an industry in which

emerging market players own future growth?

Dealing with growth slow-down driven by lower GDP growth and

market maturity?

After the success of ME and NA,

what is the future for upstream value creation?

Supply Demand

Challenges and disruptions

facing the petrochemicals

industry

1 2

3

5

4

6

Funda-mentals

Structuralchanges

Disrup-tions

4McKinsey & Company

Plastic demand covers multitude of applications, evenly split evenly between durable

and non-durable applications

SOURCE: American Chemistry Council; IHS; Expert interviews; McKinsey Analysis

1 Based on volume of polyolefin consumption in US and EU

Consumer goods

Industrial

packaging

29

2521

Consumer packaging

Automotive &

Transportation

Electronics

& Appliances

Energy

5

Building &

Construction

Others

71

6

6

EXAMPLE: PE/PP

Durable applications (1-15 years)

Non-durable applications ( <3 months)

5McKinsey & CompanySOURCE: Cembureau, International Cement Review, World Steel Association, ICIS supply and demand, Forestat, USGS

10,000

1,000

100

10

Aluminum1

Cement1

Steel1

2015

Paper

Plastic2

1980 200095 109085 05

Log scale(MTA)

1 Cement, steel and aluminum have seen a surge since 2000 driven by the Chinese construction boom2 Polyolefins, PVC, PET, PS, PC, PMMA, ABS, SAN, Bioplastics – Overall share of PO is 51%

Following a period of substitution fueled growth, plastics now grow in line with GDP

also as result of its broad application portfolio

Plasticsto GDP

Plasticsto others

6.6

4.5

4.6

1.5

5.1

3.1

6.4

0.9

3.3

2.3

1.2x2x

1x3x

CAGR 1980-2000 (%)

CAGR 2000-2015 (%)

6McKinsey & Company

As plastics demand continues to grow and remains status-quo, its impact on the environment will

become more and more felt

1 Annual landfill amount in 2015. Assumptions: landfill height 10m, density of plastic waste 72 kg/m^32 Cumulative landfill amount from 2015 to 2050

Oil & gas consumption for Plastics productionShare of global production

6% of global consumption

15% of global consumption

LandfillArea covered

~3x surface of Manhattan1

~60x surface of Manhattan2

Plastics productionIndex

2050 (Business as usual)2015

100 300

7McKinsey & Company

Future for plastics in the GCC

Enter the Circular Economy

I have word for you "Plastics"

Contents

8McKinsey & Company

Perception is grounded in facts: more than two thirds of plastics produced annually end up in landfills

or are leaked into the environment

SOURCE: IHS; New Plastic Economy report; McKinsey analysis

1 The losses include value loss during sorting process (~30-40%, going into incineration) some yield loss and potentially cascaded recycling, i.e. the recycling into other, lower-value applications. Recycling numbers varies according to sources (IHS reporting and expert interviews)

2 Measure for net increase of plastics stock, represents difference between beginning and end of year: ~ market growth x product lifetime x demand. Assumptions on lifetime, growth and market share for 7 different categories flow into calculation3 Bio-based materials account for <1%

4 Jambeck et al. (2015), estimate for coastal countries and for 2010: 31.9 MTA mismanaged plastic waste, from which 4.8 to 12.7 millionentered the ocean in 2010, equivalent to 1.7 to 4.6% of the total plastic waste generated in those countries.

Polyolefin (PO) value chain, 2015

Remanufactured/Refurbished

Total annual

polymer used in product

production

Recycled PO of

annual production)

Recycling loss from sorting and process yield1

Collected for recycling

Landfill

Waste leakage4

Virgin fossil-based PO3

(97%)

Total annual

end-user consumption

Delta in-use2

14%

~5%

~95%

100%

40%

32%

14%

Incineration and energy recovery

9%

9McKinsey & Company

There are two potentially complementary approaches: reduce the waste stream and provide

alternatives with lower environmental footprint

SOURCE: McKinsey analysis

5.Re-energize4.Monomer

recycle1.Demand

reduction2.Refurbish/Re-

manufacture3.Polymer recycle

Provide alternatives for cPO

1. Bioplastics (renewable raw materials)

2. Biodegradable plastics (to reduce waste)

3. Materials with high recycle potential

4. Design for higher re-use potential (refurbish,

remanufacture)

B

Feedstock Monomer Polymers Compounding Fabrication Use End-of life

Reduce demand for cPO (fossil-based virgin PO)A

10McKinsey & Company

Multiple options available – portfolio approach likely required

1 Reduction of the amount of CO2 emitted per ton of PO or PO equivalent 2 Reduction of the amount of plastic that is lost or ends up as landfill 3 Improves the hydro-carbon efficiency of the chain - ratio of fossil feedstock to end market demand

Low impact High impact

Impact per ton of PO addressedHydro-carbon loss (waste)2

Refurbish, remanufacture

Polymer recycle

Monomer recycle

Energy recycle

Super polymers – lower cost,

lower footprint

Bio-degradable polymers

Bio-based PO (renewable

feed-stocks)

Bio-polymers – alternatives

to PO (non-biodegradable)

Carbonfootprint1

Reduce demand for cPO (fossil-

based virgin PO)

A

Provide alternatives for cPO

B

11McKinsey & Company

Example Europe – recycled plastics volumes are still limited by insufficient waste supply and recycling

inefficiencies

SOURCE : IHS, PlasticsEurope/Consultic (2015), Deloitte, McKinsey analysis

49

Plastic consumed

Compared to a total volume of plastic consumed in Europe...

Post-consumerwaste

26

...only about half as

much ends up in

the official waste

streams

53% of

consumption

Recovered

18

Of these, about

2/3 are collected for further

processing, the

rest going to

landfills

32%

Recycledmechanically

8

Half of the

recovered material

is mechanically

recycled

The remainder

is incinerated

or exported

15%

Post-treatment yield

5

Due to losses

during the

treatment, only

10% of the consumed volume reenter the production

cycle

10%

Theoreticaldemand for

recycled plastic

11-16

Demand increasing due

to regulation,

consumer

preference and

private sector

initiatives

20-30%

See next page for details

Example – Polymer recycling (MTA 2015)

12McKinsey & CompanySOURCE : Company websites

1 Paper, metal, glass, wood, construction materials; 2 Includes waste disposal services, landfill, incineration, wastewater treatment, etc.

Example Europe – current industry is still fragmented, with multiple small plants, and no clear roles

Waste management players

Virgin plastic players

Pure re-cycling and compounders

Capacity kta

#plants

Collec-tion & storage

SortingRe-cycling

Com-pound-ing

Waste separa-tion

End-productsCompany

examples

Plastic recycling value chain

Recycled resins

40 1ABS, PE, PP, PS,

others

75 MultipleABS, PE, PP, PS,

PET, PC

60 1PE, PP, PS, PVC,

PET

220 6PE, PET, PP, PS

80 2ABS, PE, PP, PS,

PA, POM

30 PE/PP 2

UNDER CONSTRUCTION

13McKinsey & Company

Future for plastics in the GCC

Enter the Circular Economy

I have word for you "Plastics"

Contents

14McKinsey & Company

GCC Plastics Production GCC Plastics Consumption Recycling options (example)

Future of Plastics in the GCC – time to start working on an effective response?

SOURCE: GPCA, McKinsey analysis

MTA

35

27

2016 2022

4%

75

2016 2022

5%

2022

~X

…

2016

~Y

System loss

Landfill

Energy

Monomer recycling

Polymer recycling

15McKinsey & Company

Future of Plastics in the GCC – Integrated recycled and virgin production facility may

offer significant advantages Known mature Known immature New being developed x MTA

1 Based on max 25% of reground PO could be used in new products, rest would require virgin materials 2 Ethylene/propylene equivalent3 Assuming total 67% yield to ethylene and propylene 4 Waste-to-energy to supply energy requirement

SOURCE: Expert interviews; McKinsey analysis

CONCEPTUAL

HydrocarbonsEthylene/ Propylene

production

Ethylene/ Propylene

purification

PE, PP production

PE, PP compounding

(blending)

PE, PPconversion

Waste Re-energizeRe-monomeri-zing

Sorting

End-of-life collection/ pre-

sort

3 22 4 4

40

24 12 11

3

Integrated PO production

Being done at end-use sources (e.g.,

municipalities)

Regrinding

16McKinsey & Company

Future of Plastics in the GCC – an effective response will require collaboration between key

stakeholders

Others

What they can bring What they lack

Waste management companies

▪ Access to waste and waste management

supply chain capabilities

▪ No/ limited application development know-

how and market access

Recyclers and compounders

▪ Application development know-how and

customer access

▪ No/ limited access to waste and waste

management supply chain capabilities

▪ Likely low capability and capacity to build world-scale plants

Polymer producers

▪ Strong in application development and

customer access

▪ Strong capability and capacity to build world-scale plants

▪ Limited access to waste and waste

management supply chain capabilities

▪ … ▪ …

Who will take the lead in orchestrating collaboration between different actors?

Thank youwww.gpca.org.ae