Market Overview

As Plastic Regulations and Bans Increase, Market Value for Biodegradable Polymers Exceeds $1 Billion and Will Rise Sharply by 2023, IHS Markit Says

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Western Europe largest market for biodegradable plastics as region
tightens restrictions on plastic shopping bags; regulation is most
significant demand driver

Led by Western Europe, increasing regulations and bans against plastic
bags and other single-use plastic items such as drinking straws is
driving growing demand for biodegradable plastics, according to new
analysis from IHS
Markit
(NASDAQ:INFO), the leading global source of critical
information and insight. The current market value of biodegradable
plastics exceeds $1.1 billion in 2018, but could reach $1.7 billion by
2023, the report says.

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World consumption of biodegradable polymers by region - 2018. Source: IHS Markit

World consumption of biodegradable polymers by region - 2018. Source: IHS Markit

Biodegradable or compostable polymers are bio-based or fossil-fuel-based
polymers (plastics) that undergo microbial decomposition to carbon
dioxide and water in industrial or municipal compost facilities. A few
of these polymers decompose in backyard compost bins or in soil,
freshwater or saltwater.

The food packaging, disposable tableware (cups, plates, and cutlery) and
bags sector is the largest end-use segment, as well as the major growth
driver for biodegradable polymer consumption. This segment will benefit
from local restrictions on plastic shopping bags and will achieve
double-digit growth. Compost bags are the second most important end-use
for biodegradable polymers. This market segment will experience strong
growth thanks to the gradual expansion of composting infrastructure and
growing interest in diverting organic waste such as leaves, grass
clippings and food waste from landfill, according to the IHS
Markit Chemical Economics Handbook: Biodegradable Polymers Report
.

Foam packaging, which includes starch-based loose-fill packaging
(packing peanuts), is a significant end-use for biodegradable polymers
in Western Europe and North America; mulch films and other agricultural
applications are important end uses in Western Europe and Asia.
Smaller-volume markets include paper coatings for cups and cartons, as
well as textiles, nonwoven fabrics, resorbable medical devices such as
sutures and implants, downhole tools for oil and gas field operations,
and 3-D printing filament.

In 2018, global demand for these polymers is 360,000 metric tons, but
total consumption of biodegradable polymers is expected to increase to
almost 550,000 metric tons by 2023, representing an average annual
growth rate of 9 percent for the five-year period, which is equivalent
to a volume increase of more than 50 percent from 2018 to 2023.

Western Europe, with the world's strictest and increasingly stringent
regulations for single-use plastics, commands 55 percent of the global
market value in 2018 for these specialty biodegradable polymers,
followed by Asia and Oceania (Australia and New Zealand) at 25 percent,
then North America at 19 percent of consumption, with the rest of the
world combined for less than 1 percent of demand.

"Biodegradable plastics, which are largely starch-based compounds or
polylactic acid (PLA)-based materials, have become more cost-competitive
with petroleum-based plastics and the demand is growing significantly,
particularly in Western Europe, where environmental regulations are the
strictest," said Marifaith Hackett, director, specialty chemicals
research at IHS Markit and the report's lead author. "However, the
demand for these biodegradable polymers is still a drop in the bucket
when you compare it to demand for traditional plastics such as
polyethylene (PE)."

According to IHS Markit, global demand for PE, the world's most-used
plastic, has nearly doubled during the last 20 years. IHS Markit expects
2018 global PE demand to exceed 100 million metric tons (MMT). However,
significant new market pressures, including a rise in consumer
expectations around sustainability, along with tightening environmental
regulations in mature markets such as Europe and key growth markets such
as China, could threaten future demand growth.

"The properties and processability of biodegradable polymers have
improved, allowing the use of these materials in a broader range of
applications, but legislation is the single most important demand driver
for these plastics," Hackett said. "Restrictions on the use of
non-biodegradable plastic shopping bags in Italy and France have led to
a significant increase in the consumption of biodegradable polymers in
those countries, and we expect European countries will continue to lead
in legislative restrictions."

In contrast, Hackett said, biodegradable polymer use has grown more
slowly or stagnated in places that lack mandates. "Growing consumer
awareness and activism regarding environmental issues could certainly
increase the market for biodegradable plastics," she said. "To truly
capture the benefits of these biodegradable polymers, however, you need
to have the collection and composting infrastructure to support their
use. Very few major cities or municipalities currently have the
necessary infrastructure in place."

Hackett said it is important to understand that many biodegradable
polymers are compostable only in special industrial composting
facilities, which operate at higher temperatures than home compost
piles. "Only a subset of biodegradable polymers is compostable in
backyard compost bins; an even smaller subset is compostable in the soil
or in marine environments," Hackett said.

Despite the positive potential of biodegradable polymers, they are still
mostly taking a backseat to other sustainability approaches, such as
reducing plastics consumption and recycling, Hackett said. "For various
reasons, which may include consumer confusion regarding bio-based
plastics versus biodegradable polymers, there is not as much demand for
these more sustainable plastics as you might expect, despite heightened
public awareness of the plastics waste issue," she said. "In addition,
suitable disposal options for products made from biodegradable polymers
are often lacking. The cost of establishing the infrastructure necessary
to support their collection and composting remains a barrier to demand
growth."

Mandatory composting programs can contribute to demand growth for
biodegradable polymers, the IHS Markit report said. These programs
divert organic waste from landfill, thus reducing greenhouse gas
emissions from landfill sites. The expansion of composting programs can
spur demand for compostable trash bags and food service ware, both
important end uses for biodegradable polymers. The shortage of
composting facilities that are capable of processing biodegradable
polymers limits the positive impact of mandatory composting programs on
biodegradable polymer demand.

"More legislation is likely coming in Europe or at the E.U. level, and
if that occurs, we could see major changes in this industry and pushback
from producers of traditional plastic products," Hackett said. "The last
time we at IHS Markit assessed the global demand for biodegradable
polymers, we noted the U.S. was the largest driver of demand growth for
this segment, but due to legislation, Europe is by far the leading
demand center. Europe is the place to watch, as Europeans are
particularly motivated to reduce marine litter."

The issue of plastics and sustainability will be a key topic of
discussion at the upcoming 6th Annual Global
Plastics Summit (GPS) 2018, October 30 – November 1, in Chicago
.
Experts from IHS Markit and the Plastics Industry Association will
discuss the latest market outlooks from key industry sectors, and will
feature senior business leaders sharing their companies' strategies for
success and innovators presenting the latest in plastics technologies.
Bob Maughon, R&D vice president, Packaging and Specialty Plastics and
Hydrocarbons, The Dow Chemical Company, will discuss sustainability as a
catalyst for innovation in packaging. Don Thomson, president of The
Center for Regenerative Design and Collaboration, will address turning
plastic waste into building blocks.

The biodegradable polymers industry is affected by several major drivers
in the environmental area: solid-waste disposal patterns, existing and
potential legislation, and consumer attitudes and behavior. The
evolution of these factors and their impact on the biodegradable
polymers industry differ in each region of the world.

In the U.S., landfilling is the most common method of municipal solid
waste (MSW) disposal. According to the U.S. EPA, landfill accounted for
53 percent of total MSW in 2014 (the most recent year for which data is
available). Materials recycling accounted for 26 percent, and combustion
with energy recovery at 13 percent were next in order of importance.
Composting accounted for 9 percent of MSW disposal.

Composting has the potential to become a more important means of MSW
disposal, especially for food waste and yard trimmings. According to the
IHS Markit report, together, these two categories of waste accounted for
28 percent of U.S. MSW generation in 2014! In the case of yard
trimmings, 31 percent of the waste generated was landfilled, while 61
percent was composted, and the remaining 8 percent was combusted with
energy recovery.

Composting of plastics waste was negligible in 2014. Landfill was the
primary method of disposal, responsible for 75 percent of plastics waste
in the U.S. Combustion with energy recovery was 15 percent, and
recycling accounted for 9 percent of the remainder.

"Biodegradable or compostable polymers can play a role in diverting
waste from landfills. For example, biodegradable pods for single-serve
coffee makers simplify disposal of used capsules; compostable trash bags
can control odors, minimize mess, discourage pests, and otherwise reduce
the 'yuck' factor associated with residential composting programs,"
Hackett said. "Diverting organic waste from landfill reduces emissions
of methane—which is a potent greenhouse gas. We at IHS Markit expect
biodegradable or compostable plastics will increasingly be an important
part of the sustainability solution, but much of their advancement and
adoption will depend on legislation as well as consumer attitudes and
behavior."

Concerns about plastic waste in the environment are contributing to
demand for biodegradable polymers worldwide. In 2015, China's Jilin
Province issued a ban on non-biodegradable plastic bags and food service
items, boosting bioplastics manufacturing in China. In addition to local
policies, there are also favorable policies for biodegradable polymers
at the national level.

In India, the biodegradable polymer market is still at a preliminary
stage, with few players in the segment. However, India seems to be
taking the lead in Asia as it relates to plastic bag bans, although
enforcement is sometimes questionable. In 2012, the Delhi government
issued an order imposing a ban on the use, storage, sale and manufacture
of single-use plastic carrier (shopping) bags in the city. In other
parts of the country, use of these bags is a finable offense, but
despite this, change is, as of yet, barely visible on the ground. India
has a significant challenge with plastic pollution and mismanaged
municipal waste.

The major manufacturers of biodegradable polymers include NatureWorks (a
joint venture of Cargill and PTT Global Chemical), Novamont, BASF, and
PTT MCC Biochem Co., Ltd., a joint venture of PTT Public Company Ltd.
(the parent of PTT Global Chemical) and Mitsubishi Chemical Corporation.

In addition, TOTAL Corbion PLA, a joint venture of energy producer TOTAL
and lactic-acid producer Corbion, plans to start up a world-scale
polylactic-acid facility in Thailand by the end of 2018. The U.S.
accounts for the bulk of production for these polymers, but Thailand,
with its proximity to growing markets in Southeast Asia, its expanding
bio-economy, favorable investment climate, stable government, and access
to cost-effective sugarcane feedstocks for fermentation, is becoming an
increasingly important contributor to the biodegradable polymers market,
the IHS Markit report said.

To speak with Marifaith Hackett or IHS Markit report co-authors Takeshi
Masuda and Lei Zeng, please contact Melissa Manning at melissa.manning@ihsmarkit.com,
or press@ihsmarkit.com. For
more information about the IHS
Markit Chemical Economics Handbook: Biodegradable Polymers Report
,
please contact jennifer.eyring@ihsmarkit.com.

About IHS Markit (www.ihsmarkit.com)

IHS Markit (NASDAQ:INFO) is a world leader in critical information,
analytics and solutions for the major industries and markets that drive
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more than 50,000 business and government customers, including 80 percent
of the Fortune Global 500 and the world's leading financial
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