Bio-Degradable Packaging market and Stocks to watch in China

With the quality of light in texture and easy to mode, plastic products are widely used for daily necessities and industrial productions. Its environmental problems, however, are painful for the earth, with the very nature of being difficult to dispose of, they brought plastic pollution. According to Our World in Data, The world has produced more than 380 million tons of plastic every year, which could end up as pollutants, entering our natural environment and oceans.

China, as reported as the largest global packaging market, is no surprise one of the most plastic waste generated countries and has the worst share of global mismanaged waste in 2010. It needs radical actions to manage plastic pollution before reaching its carbon neutrality goal in 2060.

The latest production of plastic products is 11.26 million tons in January and February 2021, a 39.3% growth compare to the same term last year. According to a Hua'an Securities prediction shared on China Global Television Network (CGTN), by 2025 “the consumption demand of domestic degradable plastics is expecting to reach 217 tons, with the market scale values at ¥47.7 billion (US$7.3 billion).” By 2030, “the demand is expected to reach 388 tons, with a market worth of ¥85.5 billion (US$13.9 billion).”

However, with great potential, the biodegradable plastics sector still faces its challenges in innovation to be genuinely sustainable and increasing demand for output capacity.

The pathway by which plastic enters the world's oceans by Our World in Data

Regulations and Policies on plastic restrictions

Since July 2017, China has announced to the world that it would no longer accept 24 types of imported solid waste, including waste plastics, waste paper, waste slag, waste textiles, and waste slag. The ban took effect in January 2018, and these plastic waste imports were officially been cut off.

Since China imposed a plastic restriction order on June 1, 2008, it is prohibited to provide free plastic bags in retail markets. Plastic bags with thicknesses less than 0.025 mm are banned from production and sales all around the country.

In the "Opinions on further strengthening the treatment of plastic pollution", China has urged the business sector to reduce the consumption of single-use plastic products, encouraging plastic recycling and the use of recyclable and degradable substitutes, according to a document from the Ministry of Commerce. The ministry has set up a nationwide reporting system to record the use and recycling of disposable plastic products, according to the document published by the National Development and Reform Commission (NDRC) and Ministry of Ecology and Environment (MEE)

Retailers, e-commerce platforms, and takeaway food outlets are required to report their use and recycling of such products, the document said. At the beginning of 2020, China released an ambitious plan to ban or significantly reduce the production and use of environmentally unfriendly plastic products in the next five years to contain pollution.

It aims to reduce the consumption of single-use plastic products and promote alternative products while increasing the proportion of plastic waste recycling and energy utilization by 2020. The import of waste plastics is completely banned at the same time. Promoting the green logistics model is one of the end goals as well.

This year (2021), a farewell to single-use plastic straws and shopping bags in major cities makes China become one of 10 nations to outright ban plastic straws, said Nation of Change. The ban was part of the Party’s 14th Five-Year Plan to reduce plastic pollution. The plan is said to ban single-use plastic bags in all cities and towns by 2022. A penalty for violation of this ban is ¥10,000 (US$1,400) and ¥100,000 (US$14,200).

By 2025, China expects to effectively control plastic pollution, substantially reduce the amount of plastic waste in landfills of key cities, establish a complete plastics management system, and make progress in the development of alternative products.

Upcoming Growth for biodegradable plastics in China

According to Greenspace, Polylactic acid (PLA) is the most well-known biodegradable plastic, with more than 20 groups of biodegradable plastic polymers exist, 3 groups are produced on a commercial production scale with nearly 95% of production capacity. The most commonly used biodegradable plastics in China are PLA, PBST, PBS, and PBAT.

The biodegradable plastics value chain by GC Insights

The packaging industry still leaves room for sustainable innovation and scale production capacity. Testing product materials and seeking better alternatives to accommodate the shifting institutional change making it another booming market. Currently, the global market still concentrates on biodegradable plastics for the packaging sector, with 53% of the total capacity ratio. The domestic market in biodegradable plastics takes 41% in the downstream packaging sector and another 31% for agriculture. The alternative packaging sector remains room for growth for the next five years, as the 14th Five-Year Plan controls more plastic waste.

Growth in some stocks was observed since the tighter regulations came in this year. For example, Kingfa Sci&Tech Co., Ltd. (600143) with a MSCI ESG rating of B, has a full production capacity with 0.08 million tons of PBAT output since 2020. The stock has seen a major uptick since January 1, 2021, as the 'strictest' legislation came in. However, growth in stock prices in some companies that have not yet invented the marketable degradable plastics is common as well. There are more companies in the private sectors are, to racing to the degradable plastic area. It is a great opportunity to invest in sustainable materials, however, investors still need to look deeper when it comes to 'true value'. After all, these are the ones who could stand a chance when the market is realizing what is better for the long run.

(Written by Yitong Yuan)

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