• Home
  • About
  • Team
  • Contacts
  • Blog

What’s in a Word? Plastics.

  1. Home
  2. Blog
  3. What’s in a Word? Pl ...

Plastics

“I just want to say one word to you. Just one word… are you listening?”

“Yes, I am.”

“Plastics.”

“… Exactly how do you mean?”

“There’s a great future in plastics. Think about it … will you think about it?”

“Yes, I will.”

“Shh … enough said. That’s a deal.”

That scene from the movie, “The Graduate” could characterize the subtext in Houston, where we recently spent three days studying the current state of the global petrochemical industry. Uncovering opportunity within that enigmatic imperative “Plastics.” does, as the movie suggests, take some thought.

“The Graduate” was released in 1967, so what’s new about plastics? Demand and supply. Specifically, unprecedented new demand from Asia continues to grow rapidly, and the new supply comes from America. The fracking revolution has brought America a windfall of cheap and abundant natural gas. While plastics can be made in other countries where crude oil is available, the production cost when using oil (naphtha) is significantly higher than when starting with natural gas (ethane), even with the decline in oil prices.

Divergence between Naphtha and Ethane Prices Key to North American Petrochemical Competitiveness

Divergence between Naphtha Ethane

In huge industrial facilities, components of natural gas such as ethane, propane and butane are used as the raw materials in making the polyethylenes, polypropylenes, etc. that are found everywhere: bags, boats, bottles, clothes, carpets, cars, containers, cups, currency, gloves, glues, glasses, paint, pipes, plates, tubes, tires, toys, utensils and upholstery to name just a few. Moreover, new plastic formulations for additional applications are furthering boosting demand. For example, the newest commercial airliners, the Boeing 787 and Airbus A350, are both made largely (50% and 52% respectively) of high tech plastic.

What other advantages does America have over other countries in bringing its plentiful shale gas to market? The world’s largest number of drilling rigs (1800), relatively low population density, private land ownership rights (including mineral rights), abundant water supplies, extensive gas pipeline infrastructure, relatively favorable regulatory environment, and deep financial markets for funding.

Recent work by Nexant Consulting found that between 2014 and 2030, U.S. net plastic resin exports will more than triple, rising nearly $15 billion from $6.5 billion to $21.5 billion. Since 2010, construction of nearly $48 billion of new plastics manufacturing has been announced, much of that located near the port areas of Texas and Louisiana.

Chicago Bridge and Iron and Fluor benefit from this cyclic boom, being among the few companies in the world capable of designing and constructing these immense facilities. These companies can also be expected to benefit from another $70 billion in new investment in other chemical manufacturing resulting from the U.S. shale advantage.

To appreciate the scale of these ethane projects, consider the following quote regarding a current Fluor project for Sasol:

“As part of Sasol’s plans to strengthen its position in a growing global chemicals market, the company is developing a world-scale ethane cracker and derivatives complex that will roughly triple its chemical production capacity in the United States.

“The new $8.9 billion complex, located adjacent to Sasol’s existing facility in Southwest Louisiana, encompasses a 1.5 million tons-per-year ethane cracker; and six downstream derivatives units; and associated utilities, offsites, and infrastructure work.”

Anticipated Wave of Plastic Industry Investment by Segment

American Chemistry Council Plastics Analysis

Analysis by the American Chemistry Council indicates that, when these many plastics facilities come online over the next decade, a combined 461,800 direct, indirect and payroll-induced new jobs will be created due to shale-advantaged plastics production. This new plastics manufacturing can also be expected to contribute to a more general manufacturing renaissance, which in a virtuous cycle, increases demand for plastics. Plastics materials makers pay workers on average nearly $85,000, more than 70% higher than the average U.S. worker. Under this scenario, it is conceivable that even our holdings in St Joe Company may benefit.

07/14/2015



Leave a Reply Cancel Reply

Your email address will not be published.


Comment


Name

Email

Url


Blog Archive

2020

  • The Stock Market

2019

  • Behavioral Investing

2018

  • Trumped
  • Warren Buffett vs Wall Street
  • Globalism, 1982-2000 Bull Market

2017

  • Volatility Underlying Calm Market
  • What’s new with CB&I?
  • Passive Investing
  • Economic Cycles
  • Current Stock Market 2017 Comment

2016

  • Global Plastics Summit Highlights
  • Value Investing vs Index Investing
  • How to Play an Index Bubble
  • Successful Investors
  • Is the Market Overvalued?
  • Operating Earnings
  • Article by investment manager in Bay Hill Living
  • Building Foundation

2015

  • 3G Culture – Dream Big
  • Myopic Loss Aversion
  • CBI Nuclear Energy
  • St Joe Company
  • What’s in a Word? Plastics.
  • Are Bonds Safer Than Stocks?

2014

  • Chicago Bridge and Iron
  • CAMEX 2014
  • Global Economy October 2014
  • Fluor Corporation
  • Interesting Quotes from Daily Journal Annual Meeting
  • The Daily Journal Annual Meeting
  • Albemarle Corporation
  • Triumph Group
  • The American Energy Revolution
  • Singapore

2013

  • St Joe Company Update
  • Hedge Fund Managers
  • Triumph Group Inc.
  • Bitter Brew
  • An Antifragile Portfolio

2012

  • Leucadia National Corporation
  • This Time it is Different
  • Successful traders psychology
  • St Joe Company
  • Learning from Pain

2011

  • Long Cycles – Part II
  • Long Cycle
  • Nasty Month for Market
  • Make a Buck with Fortescue Metals Group
  • Berkshire Hathaway Look Through Earnings
  • St Joe Company Inc
  • Successful Investment Management
  • A Look Into Latin American Market
  • The Mother of all Quarters
  • 2010 Investment year results

2010

  • Fault Lines
  • US Market 2010
  • Berkshire Hathaway Third Quarter 2010
  • The Stock Market 2010
  • Berkshire Hathaway Second Quarter 2010
  • Berkshire Hathaway Performance
  • Long Term Greedy
  • Goldman Sachs
  • Berkadia and Leucadia
  • USG corporation
  • Berkshire Hathaway 2009 2010
  • Why Capitalism Works

2009

  • The Lords of Finance
  • The $44 Billion Dollar Train Set
  • Berkshire Hathaway 3rd Quarter 2009
  • Career Risk for Investment Manager
  • Berkshire Hathaway financial statements
  • Berkshire Hathaway Preferred Stock
  • Moral Hazard
  • Credit Default Swap
  • The Shadow Banking System
  • Learning Things the Hard Way
  • Our C-System
  • 2008 Investment results

2008

  • Investment Risk
  • Bear Markets
  • Generational Events
  • Orange sheets – Money is doing better
  • Inflation Not The Problem
  • Tipping Point
  • Long Term Capital Management
  • Financial Insurance
  • Western Refining Inc
  • Berkshire Hathaway Year To Date
  • Berkshire Hathaway Cash Flow
  • 2007 investment results

2007

  • Investment results 4th Quarter 2007
  • Greenspan on Inflation
  • Berkshire Hathaway Third Quarter 2007
  • Berkshire Hathaway Operating income 2007
  • Berkshire Hathaway Hedge Fund
  • Leveraged Buyouts
  • Stability Unstable
  • Weak Dollar
  • Berkshire Hathaway Chairman’s Letter
  • Steel Dynamics
  • Breakwater Resources
  • 2006 Investment year results

2006

  • New Investment Stocks
  • Equitas
  • Berkshire Hathaway Third Quarter 2006
  • Hurricane Synergy
  • Berkshire Hathaway Second Quarter 2006
  • Fat Pitch
  • Perfectly Obvious
  • Berkshire Hathaway Growth Rate
  • Berkshire Hathaway First Quarter 2006
  • Berkshire Hathaway Annual Report 2006
  • Inflation Is
  • 2005 Investment year results

2005

  • Exogenous Events
  • The Easy Money
  • Look-Through Earnings
  • High-Risk Mortgages
  • Unintended Consequences
  • Rydex Ursa Fund
  • Warren Buffett Premium
  • Private Equity
  • Latticework Mental Models
  • Buffett’s Lackluster Performance
  • 2004 Investment year results
  • Professor Smith’s Second Bubble

2004

  • Hedging Currency Disaster
  • Risk Assessment
  • Too Many Bears
  • The Chinese Century?
  • Patterned Irrationality
  • Timber
  • Costco’s Cash
  • Physics Envy by Charlie Munger
  • Asset Allocation Berkshire Hathaway
  • The Balance of Payments
  • 2003 Investment year results

2003

  • Hedge Funds
  • The trade deficit is not debt
  • Secular Bear Market
  • Which Index Funds?
  • A Different Drummer
  • Costco’s Float
  • The Power of Float
  • Berkshire Hathaway Annual Meeting 2003
  • Psychology of Human Misjudgment
  • Sitting on the Sidelines
  • Berkshire Hathaway intrinsic value
  • 2002 Investment year results

2002

  • Insurance company Moats
  • Bond Bubble
  • Berkshire Hathaway Cash Flow 2002
  • Behavioral Economics
  • The Bear Market 2002
  • Greenspan Put
  • Second Quarter Cash Flow at Berkshire Hathaway
  • Berkshire Hathaway Annual Meeting 2002
  • Red Wire – Green Wire
  • Stupid FED Tricks
  • The Bottom Line
  • 2001 Investment year results

2001

  • Don’t Fight the FED
  • Buy and Hold? – It all Depends
  • Ben Laden and Berkshire Hathaway
  • The Dinosaurs Dance
  • Costco Moat
  • Bubble Watching
  • Sit on your Ass investing
  • Berkshire Hathaway Annual Meeting 2001
  • Carnival Cruise Lines
  • 450000 Square Ft Furniture Store
  • Lunch Money Indicators – Annual report
  • Other People’s Money

2000

  • Bear Tracks
  • Build It and Money Will Come
  • Efficient Stock Market
  • Style Drift
  • Lunch Money Indicators – Options
  • Identifying Problems
  • Small Retail Stocks
  • Charlie Munger comments
  • Big Al and the Bubble Machine
  • Berkshire Hathaway Cheap
  • Index Funds
  • 16 rules for investment success
Make an appointment or contact us by phone: +1 (800) 639 19 81
© 1999 - 2022 Losch Management Company
Support by Global AGM