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One Word: Plastics

Posted By Jeff Moad, October 11, 2012 at 4:38 PM, in Category: Transformative Technologies

One of the expected drivers of North American manufacturing growth--including reshoring--is lower energy costs enabled by increased shale gas production. The price of natural gas in the US had dropped from $12.50/MBTU in 2008 to about $3/MBTU today. That means not only lower energy costs for domestic manufacturers but an opportunity to sell more products into the booming natural gas exploration and production industries. A (report earlier this year Shale Gas- Energy & Regulatory Policy 2012) predicted that the result will be 1 million new manufacturing jobs by 2025.

But the benefits to manufacturers don't stop there. More cheap natural gas also means more cheap raw materials, particularly chemical-based plastics produced from ethylene which is, essentially, a by-product of natural gas production. A recent report by PwC estimates that the US chemicals industry has invested $15 billion in ethylene production in recent years, increasing production by 33%. As a result, the price of ethylene is expected to drop from historical levels of around $1,000 per ton in the US to a little more than $300 per ton.

This will certainly help manufacturers of products with high ethylene content such as specialty chemical manufacturers, plastic bottle producers, and makers of packaging products. But, the report predicts, other manufacturers will benefit also as they begin to substitute ethylene-based plastic materials for higher-cost materials such as metal, glass, wood, leather, and textiles.

"While today automobiles have a 20% chemical content, that percentage could rise as some manufacturers reengineer parts to increase chemical content, thereby decreasing weight and costs," the report predicts.

Maybe Mr. McGuire was onto something when he advised Benjamin Braddock, "There's a great future in plastics," in the iconic film, "The Graduate."

The report advises that manufacturers begin to rethink product designs to take advantage of lower-cost ethylene-based materials and begin to make deals with providers of such materials.

Has your company begun to engineer more ethylene-based materials into its products? Do you expect this trend to represent a significant opportunity to reduce costs?

Written by Jeff Moad

Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit


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