Argus Vice President for Global Business Development Muhamad Fadhil talks to the CEO of Nexeo Plastics Paul Tayler about resin demand, global inflation, and sustainability in the chemicals industry.
In this exclusive interview with Argus, Paul and Fadhil discuss:
- How inflation impacts resin demand for Nexeo in the US and globally
- Rising energy costs in Europe
- Polymer freight rates
- The importance of sustainability in the plastics industry
Muhamad Fadhil: Hello, everyone and welcome to "Chemicals Conversations." Chemical Conversations is brought to you by Argus Media, a leading independent provider of energy and commodity pricing information. My name is Muhamad Muhamad Fadhil and I'm the Vice President of Global Business Development at Argus. I am very, very pleased to be joined by Paul Tayler, CEO at Nexeo Plastics. Hello, Paul.
Paul Tayler: Hi, Muhamad. And thanks for inviting me on the show today.
Muhamad Fadhil: Paul, before we start properly, I wanted to just give our audience an opportunity to learn more about Nexeo. Could you give us a one-minute introduction, please?
Paul Tayler: Yes, sure. Nexeo Plastics is part of the GPD companies, Global Plastics Distribution. It's one of the leading global distributors of thermoplastic resins. Its origins date back almost 50 years. If we fast forward to today, we distribute more than eight-and-a-half thousand products into more than 60 countries. It's got revenues well in excess of $2 billion. It has a global workforce of more than 700 employees, strong presence in North America, in Europe as well as China and Asia. The headquarters is in the Woodlands in Texas. We have a European headquarters in Barcelona, Spain, and our Asia headquarters is in Shanghai. We work with more than 60 world-class suppliers, and we supply more than 9,000 customers across the globe. We touch almost every market where plastics are used from automotive to healthcare, packaging, and also new technologies such as 3D printing.
Muhamad Fadhil: That's very, very comprehensive, Paul. Thank you so much for that. We've met recently in Houston and I remember discussing rising inflation as a major cost pressure. I wanna learn more from you. How does inflation impact rising demand for your US and global businesses?
Paul Tayler: Yes. Inflation's an additional challenge that all businesses need to manage, including ourselves. Actually, I think the combination of inflation coupled with increased price volatility and the recent product scarcity has presented the market with a more complicated and difficult dilemma. It's perhaps difficult to specifically link a change in demand purely to inflation alone because of that combination. During 2021, we observed strong demand for plastics. During that period, the what seemed to be an ever-increasing number of force majeures from plastic producers caused by COVID, the famous Texas Freeze. There was a shortage of some critical plastics additives, such as glass fiber, peroxide, and flame retardants. It just seemed to be one issue after another. That combination created an imbalance between demand and availability. So the priority during 2021, despite inflation, was gaining access to materials. So, we saw strong demand for plastics we were selling.
Towards the end of 2021 and moving into the start of 2022, demand was tempered across the full value chain. Availability started to rebalance. Companies using plastics then looked to optimize their operations, including inventory levels to mitigate against the impact of the ongoing inflation. Deliberately running lower inventory levels did remove some demand from the market. Following that low period, we've seen demand rebound quite strongly to such an extent that our Q1 2022 for our North American business achieved all-time record volume sales and our outlook also remained strong. The growth that was achieved even though some key markets using plastics such as automotive have remained constrained due to the chip shortage. In fact, we were able to mitigate against that due to growth in other markets such as healthcare, medical, and industrial.
China and Europe is a bit of a different story. In China, demand was slowing, but it's been significantly impacted by the strict lockdowns due to COVID. Many ports and operations simply shut down, and this has had a knock-on effect in the overall global market where regions that were previously served by China imports are now seeking local alternatives. Europe is somewhat in between. Demand began to increase as COVID restrictions were lifted. But now with the onset of the war in Ukraine, that increased uncertainty and inflation, the market situation is a bit more uncertain, I would say.
Muhamad Fadhil: Very, very useful and comprehensive again, Paul. I wanna zoom in into your comment on Europe where I believe Nexeo has a significant presence. A lot of challenges as we see in this year and also last. How do you see rising energy costs in Europe looking like?
Paul Tayler: Energy costs were already high in Europe. Now they've been pushed to astronomical levels due to the invasion of Ukraine. Some regions of Europe that require energy imports have seen very significant energy costs just over the last few months of more than 35%. And it's difficult to see that situation changing in the near term. I think we need to learn to manage that inflation and those increased costs.
Muhamad Fadhil: I wanted to pivot to another hot topic, which is supply chain. I'm really interested to learn from you how rising freight in the past 18 months impacted Nexeo and how your team globally mitigated that. And are you expecting a downward correction in freight rates anytime soon or later this year?
Paul Tayler: Freight costs in North America rose probably on average by about 20% last year, and the costs of sea logistics rose much more significantly than that as well. So, that especially impacted businesses dependent on imports from China. In our case, we were able to offset some of that in a number of ways. Firstly, we have strong local producer partners in each of the regions we operate. Secondly, Nexeo Plastics is also rather unique in the plastic distribution space in that we actually have our own truck fleet, which we supplement with third-party logistic providers. So, over the past year, we've optimized the use of our local fleet versus common carriers, which has helped us to offset some of that cost. The other benefit though has been the level of service performance we achieve with our own fleet, which has been superior to the common carrier performance.
We've also invested well following the freeze and shortages that we experienced in 2021, we strengthened our logistics capabilities, we increased the pool of third-party logistic providers that gave us great flexibility. And we feel this balance worked well for us and our customers. In terms of movement going forward, we are seeing some relief, some reduction in freight rates, but that's been mitigated to some extent due to the fuel cost increases. But we have seen some relief since the end of January this year. So, hopefully, that will continue.
In Europe, we saw a different challenge. There was already a scarcity of drivers in Europe. And this has become worse because a large proportion of drivers in Central and Eastern Europe come from Ukraine. And many of those drivers have now gone back to Ukraine to fight in the war. On top of those rising fuel costs, we have other big events in Europe, such as Brexit and the EU mobility package, which has created a difficult situation. At Nexeo, we were able to mitigate some of that versus the general market freight cost increases. We've taken advantage of our pan-European presence. We also have invested in our pan-European supply chain team capabilities and working with our third-party logistics partners there we've managed to do best to mitigate against it, but it's a difficult situation.
Muhamad Fadhil: We spoke a lot about challenges, but not so much about opportunities. In light of all the recent freight challenges, geopolitical challenges that we see, what are the key opportunities that you see in the plastics industry?
Paul Tayler: Actually, I'm very positive about the future. Plastics remain essential materials used in everyday life. And personally, I see more and more applications that will benefit from the use of plastics. Let's look at some of the trends. If you look at electric vehicles, they're becoming more and more popular. The requirements of those vehicles require plastics use. And so, they're important now and they will continue to grow and play an important part in the growth of that market.
In addition, there's an infrastructure demand required in terms of charging stations. Again, another important application where plastics will play an important role. If we look at some other markets, we have an increase in trend in terms of aging population. That's gonna continue. That's a megatrend. In terms of medical and health care devices, that will increase. We've also got increased challenges to health care with the advent of COVID. We expect healthcare's use for plastics to continue to grow. Nexeo Plastics will continue to invest in that market. In fact, we recently announced the establishment of a new distribution facility in Costa Rica to serve the thriving medical device sector there.
Lastly, I'd like to just comment on the role of distributors of plastics going forward. I believe there will be more important role for distributors like Nexeo Plastics who can manage the increasing complexities that we discussed earlier. Customers expect more now. They expect an enhanced support be that from material selection to 24/7 purchasing options, access to more and more information at their fingertips, as well as a reliable delivery performance when they need it and where they need it. So, I think it's very positive for the plastics industry in general, and especially for distribution within plastics.
Muhamad Fadhil: Thank you, Paul. I want to touch on client expectations, as you say, and in particular, recycling. How important is sustainability to your business?
Paul Tayler: I would say sustainability is perhaps the agenda item for our industry. For our industry to be successful, all parts of the value chain will need to fully engage on this topic. It's about collaboration and partnerships. And for Nexeo Plastics, I believe we have a very important role to play. There's no question that demand for sustainable products is increasing at a pace. We provide a very important link between our suppliers who are developing a whole range of new products from recycled content to biobased to compostable. And we are working with our customers to find applications where they can be used and help them with the use in their industries that they're operating in. We recently acquired a business in Italy called Nevocolor. And one of the attractions for us for that business was that Nevicolor was developing with their customer base a recycled loop arrangement. So, they were selling product and then collecting it, bringing it back, and then helping that be reused. We see that increasing in future and we want to grow that.
Also, within Nexeo Plastics, we've developed a network of sustainability champions in each of the regions we operate, and they help coordinate our activities and also work with our supplier partners. So, we're investing a lot. It's important for us. The other thing is, as well as being good for the environment, it's actually very good for business. You know, there's more and more demand and we certainly want to play our part in that from a moral and from a sustainable perspective and from a business perspective in general, it's good for business.
Muhamad Fadhil: Paul, thank you very, very much for joining me today. We have to draw to a close now. It's been a real pleasure talking to you and thank you to everyone for listening. If you've enjoyed this podcast, please be sure to tune in for other episodes in our series, "Chemical Conversations."
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