1. Market trends

Polyethylene film is widely used in Ukraine. A feature of this type of product is its versatility. Polyethylene films without additives can be used for packaging, agriculture, construction work. Even if a manufacturer releases a product with a marked area of ​​use, this is often ignored by the consumer. The exception is films with improved properties – polymer and non-polymer additives, reinforcement, metallization. Such materials can cost several times more and are rarely bought for non-core use.

One of the most important factors in the market is raw materials. And here we are talking about the initial raw material – oil, from which polyethylene is then produced. Since Ukraine does not conduct significant oil production, these raw materials are imported, which ultimately is not more profitable than the production of products from imported finished plastic granules. Polyethylene production in Ukraine is very small – about 5 thousand tons in 2018. At the same time, there are a lot of products based on polyethylene, so the import, for example, of polyethylene in primary forms, is about 250 thousand tons annually. Even taking into account re-exports, domestic consumption is approaching 200 thousand tons. At the end of 2019, the total volume of polyethylene imports to the Ukrainian market increased by more than 10% compared to 2018, most of all – in the high-density polyethylene (HDPE) segment

Domestic production of raw materials. There is a production of primary polymers in Ukraine, however, since there are few operators in this industry, the problems of functioning of each of them significantly affect the supply of products. A planned preventive or emergency shutdown of production affects the performance of polymers. Thus, in 2018, there was a significant increase in polyethylene production.

The dependence on imports of the raw material base causes a strong influence of exchange rates on the prime cost and profitability of polymer production. In the manufacture of films and other products, additional elements are used – other plastics, dyes, stabilizers, fillers, etc. Most of them are also imported.

The situation on the world markets directly affects the Ukrainian market. A variety of important events makes price dynamics poorly predictable. So, due to the coronavirus in China this year, the demand for many industrial goods, including polyethylene, will decrease – according to some estimates, demand will decrease by 3 million tons. This will affect the activities of manufacturers around the world.

Another important aspect is the restrictions on the activities of supplier companies. So, in 2017, Ukraine imposed sanctions (supply restrictions) against Borealis, and in 2018, an individual procedure for licensing transactions of Ukrainian companies with a number of foreign companies was introduced, including Sabic Sales Europe BV, the European division of the Saudi polymer manufacturer Sabic, whose products occupy a significant market share. Such situations affect the timeliness of the supply of raw materials and may negatively affect Ukrainian producers, which have 1 supplier.

The constraint on prices is the purchasing power of consumers. As a result, manufacturers are trying to reduce costs by replacing components with cheaper counterparts. One of these substitutes is chalk-filled polyethylene concentrates. The content of calcium carbonate in such concentrates reduces the cost of raw materials, which can reduce the cost of the finished product by 30%. Chalk additives can also partially function as a white dye.

Recycling of plastic waste is one of the ways to obtain raw materials for PE films. This can be both internal waste of the enterprise – scrap, scraps remaining during the production of the main product, and the processing of already used goods. If the first option is common in manufacturing enterprises, then the second is not yet working in full force. The processing problem consists of the lack of both technological and legislative support. Sorting of waste is carried out on a small scale, unable to provide a significant amount of raw materials for film manufacturers.

The table below shows the dynamics of plastic waste disposal – and these are all types of disposal, among which recycling is only a small part.

Table 1

Utilization of plastic waste in Ukraine, thousand tons

2015 2016 2017 2018
Утилизация пластиковых отходов, тыс. тонн 50,7 51,4 13,8 15,6

Among the offers on the market, recycled PE products are most often found in the segment of construction films. When recycled, the quality remains sufficient, and the conditions of use make it possible to disregard possible small impurities.
The determining factor for the film market is the performance indicators of consumer industries: the construction industry, industrial production and trade, indoor farming and growing vegetables and berries.

2. Key market indicators

The capacity of the PE film market in 2019 decreased by 2%. The decline occurred in all segments. The decrease in exports compensated for the drop in production and imports, thus the domestic market itself did not feel significant changes.

table 2

General indicators of the market for PE films, thousand tons

2018 11 м. 2019
Производство 143,9 142,9
Экспорт 23,2 18,6
Импорт 33,2 26,5
Емкость 153,9 150,7
Темп прироста, % -2,1%

Source: according to the State Statistics Service of Ukraine; Pro-Consulting assessment

The assessment of the production of PE films was made based on the reports of companies producing “plates, sheets, films, foil and tapes from polymers”, “Nonwovens” and the assortment of each company. From the category “nonwovens”, only companies that produce agrofibre and similar products were taken into account.

In 2019, the production of PE films slightly decreased, primarily due to a decrease in the performance of industry leaders. In each specific case, the decrease could exceed 40%, but this was offset by the increase in volumes from other players. The total decrease was 0.7%.

3. Foreign trade in the polyethylene film market

Like other market indicators, the export of PE films from Ukraine decreased in 2019. When assessing the volume of supplies, not only films designated as polyethylene were taken into account, but also films designated as simply plastic, without specifying the material.

Table 3

Export of film from Ukraine in 2018-2019, tons

2018 11 м. 2019
Экспорт, тыс. тонн 23,23 18,55

Source: according to the State Statistics Service of Ukraine, the Customs Service of Ukraine, Pro-Consulting estimate

The largest segment is packaging film, agricultural and construction films occupy about a quarter of the natural volume of supplies, which is explained by the lower demand in the foreign market – the presence of many manufacturers, incl. global scale, as well as the presence of many innovative products developed by foreign companies.

The geographical structure over the past two years is very similar, the leaders are Poland, the Czech Republic, Germany and Russia, they account for at least half of the export volume. In 2019, deliveries to Poland and Russia decreased by 30%, to the Czech Republic – by 47%, to Germany – by 12%. Growth was shown by smaller destinations – the Netherlands, Denmark, Azerbaijan, Romania, Latvia, Sweden, etc.

Diagram 1

Geographic structure of film exports from Ukraine in 2018-2019, in kind,%

 

Source: according to the State Statistics Service of Ukraine, the Customs Service of Ukraine, Pro-Consulting estimate

Imports in 2019 also declined in general, with a little more packaging films being delivered.

Table 4

2018 11 м. 2019
Импорт, тыс. тонн 33,24 26,46

Source: according to the State Statistics Service of Ukraine; Pro-Consulting assessment

The main supplies were for packaging film. In 2019, due to a decrease in the absolute volume of supplies, their share increased by 13.5 percentage points.

In geographical distribution, the EU countries are in the lead. As a country of production, the EU is designated for a third or half of imports, while if you add up the “EU countries” and each country that is part of the EU, their share will be up to ¾ of the volume.

Diagram 2

Geographic structure of film imports to Ukraine in 2018-2019, in kind,%

Source: according to the State Statistics Service of Ukraine, the Customs Service of Ukraine, Pro-Consulting estimate

4. Consumption / consumer preferences in the market

Film consumption mainly occurs from the industrial segment, therefore B2B sales will form the basis of the enterprises’ activities.

Diagram 3

The main sales channels for PE films in Ukraine

Source: Pro-Consulting estimate according to the State Statistics Service of Ukraine, the Customs Service of Ukraine

The main sales of large manufacturers go through distributors, but in the case of small manufacturers, the focus is shifted towards direct sales.

Diagram 4

Main consumers of PE films in Ukraine

Source: Pro-Consulting estimate according to the State Statistics Service of Ukraine

The consumers are businesses of all sizes. In terms of purchases, the largest consumers are large enterprises, but it will be difficult for the new operator to start cooperation with them. Therefore, for new and / or small producers, medium-sized businesses will be the main consumer.

The largest consumers are leading companies in the construction industry, the food and beverage industry, which are packaged in group packaging, textiles, furniture, as well as agricultural enterprises that grow vegetables and berries (greenhouse films and mulching are often used), grain (silage sleeves and covering film).

5. Conclusions and forecast trends in the development of the polyethylene film market

The production of polyethylene films is an area of ​​secondary demand and depends on activity in such industries as industrial production of food and non-food products, construction and agriculture. In many segments of industrial production, volumes declined in 2019. For some segments, this is a continuation of the general declining trend of recent years, the level of consumption on their part will not grow in the near future, which will affect the volume of packaging consumption, incl. polyethylene.

According to the forecast of the Ministry of Economic Development, Trade and Agriculture, in 2020-2022. moderate growth is expected in both industry and agriculture. Therefore, the PE film market will not actively grow in the existing directions. Development is possible due to the displacement of other similar materials and products, as well as the expansion of ways of use.
Raw materials will continue to be the main price determining factor in the industry. Domestic production will not have a significant impact on the market due to its inconsistency.

The market for PE films in the foreseeable future remains dependent on imports of raw materials. Polyethylene sellers in the European market warned of price increases in February 2020. The ethylene contract price for February deliveries remained at the level of last December and crude oil prices have dropped significantly recently, but the market is expected to rise as imports from other regions rise.

If negative trends persist, the production of PE films will continue to decline. At the same time, the volumes of consumption still remain significant. A decrease in demand may lead to some redistribution of market shares due to the departure of unprofitable enterprises.

Nowadays, the planet suffers from plastic debris (plastic bags and other products). Now most countries are struggling with this problem at the state level. In Ukraine, they also began to pay attention to this problem, the Verkhovna Rada adopted in the first reading bill No. 2051-1 (they plan to introduce it from 01/01/2022), which prohibits the sale of certain types of plastic bags. Packages that do not meet legal requirements must be disposed of after January 1, 2022. This law shows the level of government concern about plastic waste in the country. In the future, we can expect changes in legislation regarding the use of not only plastic bags, but also other products, in particular, films.