K 2022 – Trend Report Asia
Localisation And Regionalisation: Changing Landscape Of Global Supply Chain
The world has experienced unprecedented economic disruptions in the last two years, owing in part to Covid-19 pandemic-related containment measures that hampered mobility and resulted in reduced spending and consumption of goods and services. The situation has put the world’s supply chain resilience to the test, as it has inevitably resulted in demand and supply shocks.
To mitigate the economic impact of the pandemic, a diversification in supply and demand has occurred to make it easier to obtain essential raw materials and components, as well as faster distribution of finished goods and access to skilled labour markets or manufacturing facilities. Manufacturers worldwide have either localised or regionalised their production to reduce or even eliminate their dependence on sources that are perceived as risky.
China, the world’s second-largest economy, is at the centre of the global value chain, because of its large market, extensive supply chain, large and efficient ports, and transportation networks, Recently, China, a major trading partner for the US, Europe, and Asia, has been hampered by the Covid-19 outbreak, debts, and a property downturn. Its expansion is expected to reach 8% in 2021 before slowing to 5.1% in 2022. Nonetheless, as markets stabilise, it is expected that growth will resume by 2023.1
From this year, the country’s imports and exports have managed to recover with trading partners such as ASEAN (19.7%), the European Union (19.1%), and the US (20.2%), while commerce with East Asian peers, Japan and South Korea, increased 9.4% and 18.4%, respectively. 2 For manufacturing companies operating in the global market, the “China Plus One” initiative, provides an opportunity to tap into Southeast Asia’s advancing industrial infrastructure to improve supply chain resiliency.
With the pandemic tapering off and more countries reopening, manufacturers are facing new challenges such as high raw material and energy prices, logistical bottlenecks, and inflations, while meeting consumers’ low-cost demands and remaining consistent with technological advancements to readily reach economic viability. As well, digitalisation will continue to play a vital part in keeping production and distribution efficiency as well as closing the workforce gap.
Digitalisation: 4IR and digital economy in ASEAN
The ASEAN region, which includes Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, and Vietnam, is a large market with a population of 661.9 million people. 3 The expanding trading bloc is the world’s fifth largest economy with a total combined GDP of US$3 trillion in 2020, after the US with US$20.9 trillion; China with US$14.7 trillion; Japan with US$5 trillion; and Germany with US$3.8 trillion. 4
The region has rallied behind the stringent containment measures and economic response during the pandemic. Trade has also been impacted by the pandemic, with imports and exports down 8% in 2020 compared to the previous year. 5
In order to usher in the post-pandemic economic recovery in 2022, the ASEAN must consider taking more bold steps toward manufacturing hubs, green infrastructure, digital investments, talent reskilling, and high-value food industries. 6 Given how digitalisation has helped businesses continue operations, despite contactless transactions, adoption of digital technology has become a must.
Most recently, Covid-19 has hastened the region’s digital shift, as digital technology has proven to be a critical driver of economic activity during the pandemic. To this end, the ASEAN Comprehensive Recovery Framework (ACRF), ASEAN’s whole-of-community exit strategy to Covid-19, which was launched at the 37th ASEAN Summit in November 2020, has sped up the region’s digital transition, as digital technology has proven to be a critical driver of economic activity during the pandemic.7
Enabling the Fourth Industrial Revolution (4IR) can boost ASEAN’s competitiveness by increasing innovation, moving up value chains, creating jobs with better workforce capabilities and skills, lowering capital requirements, and increasing product customisation.8
ASEAN’s internet user base accounted for 6% of all internet users worldwide in 2010; and in 2021, the number of internet users increased to 440 million, accounting for 75% of the region’s population. This includes 40 million users who first connected to the internet in 2021. ASEAN’s digital consumers have also increased by 60 million from 350 million since the pandemic.9 Furthermore, the emphasis on advanced manufacturing and the service sectors of the new economy bodes well for the growth of its digital economy.
The digital economy in ASEAN’s six largest markets – Indonesia, Malaysia, the Philippines, Singapore, Thailand, and Vietnam – is estimated to reach US$309 billion by 2025, up from US$32 billion in 2015,10 and collectively, is expected to reach US$1 trillion by 2030.11
Circular economy: cradle-to-cradle sustainability
According to the World Economic Forum, over 92 billion tonnes of materials were extracted and processed in 2019, representing roughly half of global carbon emissions.
Efforts to reduce global carbon emissions are obviously impeded by the linear take-make-dispose cycle. Enforcing a circular economy, which is restorative, regenerative by design, and makes effective use of materials and energy to retain their value by reducing waste and using natural resources sustainably, could lead to economic benefits worth up to US$4.5 trillion by 2030.12
New product manufacturing from virgin materials can produce 22.8 billion tonnes/year of emissions. Circular economy strategies can nearly double the amount of materials reused, from 8.6% to 17%, while limiting the use of virgin materials.13
However, the circular economy has not been applied because the percentage of products and materials that are reused is decreasing, while CO2 emissions from natural resource extraction and processing, which account for roughly half of all current GHG emissions, are increasing. By 2050, raw material demand is expected to double.14
ASEAN, which is still in its early stages of adopting the circular economy, is coming to grips with resource depletion, unsustainable raw material consumption, flaws in product value chains, and climate change, all of which are affecting the region’s economic growth.15
Furthermore, the region is plagued by the consequences of poor waste management. According to the United Nations’ ASEAN waste management report, the country generates a per capita of 1.14 kg/day of municipal solid waste (MSW). Indonesia produces the most municipal waste, generating 64 million tonnes/year. Thailand produces an estimated 26.8 million tonnes/year; and Vietnam, produces an estimated 22 million tonnes/year per capita of waste.16
Recycling: boosting value recovery of plastics
According to a World Bank report on Southeast Asia’s plastic circularity, less than 25% of plastics available for recycling are recycled into valuable materials in Malaysia, the Philippines, and Thailand; while over 75% of the material value of the plastics is lost, equating to US$6 billion/year across the three countries, It is due to improper waste management and poor recycling of single-use plastics.17 This is a challenge the region must address,
Malaysia, which is home to about 1,300 plastic manufacturers, has a low recycling rate, owing to its recycling industry’s focus on materials like transparent PET bottles, which are easy to collect and have a high value. A vast bulk of waste, such as food packaging, polystyrene products, and straws, go unrecycled due to lack of technology and an unappealing profitability.
Moreover, there is a lack of local demand for recycled plastics as global oil prices (which affect the prices of virgin plastics) have remained volatile. Recycled plastics have to be 15–30% cheaper than virgin resins in order to be competitive.18
According to a World Bank country study that took into account the widely used and produced plastic resins, Malaysia loses 81% of the material value of PET, PP, HDPE, and LDPE plastics. These recyclable plastics are primarily used for single-use packaging.20
Meanwhile, PVC, which is also widely used in the country’s building and construction industries, has longer application lifetimes of up to 20 years and is typically treated as construction and demolition (C&D) waste, and thus, handled better. 21
In response, Malaysia developed the Roadmap Towards Zero Single-Use Plastics 2018-2030, a comprehensive policy framework to regulate use of disposable plastics, increase uptake of biodegradable and compostable products including single-use medical devices and consumer product. It will also enforce a Federal pollution levy on plastic manufacturers, which is set to begin in 2022. Furthermore, more R&D funding will be directed toward the development of alternative eco-friendly products.19
Philippines, which is responsible for an estimated 0.75 million tonnes/year of mismanaged plastics entering the ocean, is working to increase its plastic recycling rates, which are currently at 22%.
With 78% of unrecovered material value, the country’s economy loses approximately US$ 790-890 million/year. In 2019, only 28%, or 292,000 tonnes of the 1.1 million tonnes/year of key resins consumed, including PET, PP, HDPE, and LLDPE/ LDPE, were recycled. PET (excluding polyester applications) has the highest recycling rate in packaging, at 45%.
Meanwhile, LDPE/LLDPE, used in a variety of applications such as electronics, automotive, and construction packaging sectors, are the least collected and recycled, since they have longer usage cycles, thus making collection difficult. On the other hand, the market for post-consumer plastics such as PET bottles has encouraged collection and recycling.
To close this recycling gap, several obstacles must be overcome, including high logistics costs, which prevent recyclers from sourcing feedstock locally; energy costs, which are up to 67% higher than regional peers like Thailand and Vietnam, reducing profitability for most recyclers that use low-efficiency equipment. Also on the agenda are the recycling mix, which contains a high proportion of low-value and difficult-to-recycle plastics, plus a lack of incentives to invest in more efficient recycling mechanisms and recyclers’ inability to meet market demand for quality and scale; oil prices.22
Meanwhile, Thailand, which has the largest petrochemical sector in ASEAN and the 16th largest in the world; and a plastics industry that accounted for 6.1% of its GDP in 2019, is focusing on plastic waste management as part of its efforts to strengthen trade.
In 2018, it consumed 3.49 million tonnes of plastics/year -42% of which is used for packaging; and recycled only 17.6% to 616,000 tonnes/year of key plastic resins such as PET, HDPE/LDPE) and PP, resulting in an 87% material value loss amounting to around US$4 billion/year. PET has the highest recycling rate (46%) of the resin types.
Thailand’s National Plastic Waste Management Roadmap 2018-2030 aims to recycle all plastics to boost material value recovery. This can be accomplished by increasing the efficiency of post-consumer plastic waste collection and sorting, as well as mechanical and chemical recycling capacities; setting recycled content targets across all major end-use applications; mandating “design for recycling” standards; and implementing waste management policies.23
Renewable energy: plugging into a low carbon economy
Rising urbanisation and industrialisation, as well as economies ready to rebound from pandemic losses, necessitate a stable energy supply. The post-pandemic period is also expected to be an emissions-intensive period, following a significant reduction in carbon emissions during the lockdowns.
Asia has a carbon footprint of 19 billion tonnes/year, accounting for 53% of global emissions. Excluding China and India, the region’s fossil-fuel emissions totalled 7.21 billion tonnes in 2020, while China alone accounted for 10.67 billion tonnes and India, 2.44 billion tonnes during the same period.25 Meanwhile, China leads in per capita production-based CO2 footprint at 7.41 tonnes in 2020, nearly doubling that of the rest of Asia, which was 3.86% tonnes; India accounted for 1.77 tonnes CO2.
In ASEAN, of its ten member states, oil-producing country, Brunei has a greater per capita at 23.22 tonnes followed by Malaysia at 8.42 tonnes. Myanmar and Cambodia posted the least at 0.67 tonnes and 0.92 tonnes, while the Philippines posted 1.4 tonnes per capita emissions.26
The energy sector is responsible for roughly three-quarters of the emissions that have accelerated global average temperatures by 1.1°C since the pre-industrial era.27 The energy sector’s push for decarbonisation entails a radical departure from fossil fuels and toward renewable energy sources for power generation.
In recent years, the cost of renewable energy technologies such as geothermal, hydropower, biomass, and, most notably, solar and wind has decreased. Despite these developments, certain countries in Asia, are still reliant on coal and fossil fuels for energy generation. According to a report from Carbon Tracker Initiative, China, India, Indonesia, Japan, and Vietnam are building more than 600 new coal units with an aggregate capacity of more than 300 GW, accounting for 80% of the world’s new coal-fired power plants.30
Coal, which is abundant in the region, is competitive in terms of cost with alternative fuels. Indonesia, Asia’s largest coal exporter, taps into its vast reserves of lignite and subbituminous coal. The Philippines, Vietnam, and Malaysia are also buying coal to power their large coal-fired power plants.31
Coal occupies a pivotal role in the power generation mix of Indonesia, Vietnam, and the Philippines. Fossil fuels dominated Indonesia’s power generation in 2020, with coal accounting for 62.8% of total electricity generated. Coal accounted for 48.1% and 57% of total power generation in Vietnam and the Philippines in 2020, respectively.32 Nevertheless, all three countries have pledged to decarbonise their energy and enhance their renewable energy infrastructure.
Other Asian countries, meanwhile, are eliminating coal from their energy mix. Singapore is the first Asian country to join the Powering Past Coal Alliance (PPCA), pledging to support clean energy.
Sub-governments in South Korea, Japan and Philippines have also joined the coalition, which was launched in 2017 at COP23 and that has committed to phase out coal in the OECD and EU by 2030, and in the entire world by no later than 2050.
Electric Vehicles: driving up a net-zero future
The transportation sector, which accounts for more than 25% of global GHG emissions and roughly half of global oil consumption, is ratcheting up its efforts to address global warming.
Automotive makers around the world are joining forces to decarbonise the transportation sector, which could result in 2.6 gigatonnes CO2 reduction/year by 2030.
Manoeuvring from internal combustion vehicles (ICVs) – gasoline and diesel engine vehicles – to EV technologies such as hybrid electric vehicles (HEVs), plug-in hybrid electric vehicles (PHEVs), battery electric vehicles (BEVs), and fuel cell vehicles (FCVs), appears to be the way to go.
Are they, however, more environmentally friendly? As long as non-renewable energy is used in many countries, including Asia, EVs will not be able to deliver on the net zero promise.
But even if power generation still uses a significant amount of fossil fuel, EVs can still help to reduce carbon emissions, according to a study from the universities of Exeter, Nijmegen, and Cambridge. It found that average lifetime emissions from electric cars are up to 70% lower than petrol cars in Sweden and France, where electricity is derived primarily from renewables and nuclear power, and around 30% lower in the UK.33
Besides, if every second car on the road by 2050 is electric, global CO2 emissions could be reduced by up to 1.5 gigatonnes/year.34
Southeast Asia, which is home to five major automotive makers – Thailand, Indonesia, Malaysia, Vietnam, and the Philippines – needs to accelerate its EV goals. Thailand, Malaysia, and Indonesia have already established new EV policies and are preparing for a full-fledged EV ecosystem, which includes increasing utilisation and providing incentives private investment across the value chain.35
Thailand is eyeing to produce 250,000 EVs, 3,000 electric public buses, and 53,000 electric motorcycles by 2025.36 Indonesia, ASEAN’s largest automotive market, accounting for 32% of the regional market, has prioritised the EV sector, granting it 100% foreign company ownership, among other benefits. Its US$17 billion EV roadmap seeks to achieve utilisation of 2.1 million electric motorcycles and 400,000 electric cars – 20% of which to be made locally, by 2025.37
The country has an edge due to its local nickel reserves, which are used in the production of lithium ion batteries for EVs. It is the world’s largest, with 72 million tonnes, accounting for 52% of global nickel reserves.38
Malaysia, on the other hand, is focusing on increasing clean energy production in order to encourage EV adoption on a larger scale. It seeks to have a 25% renewable energy share of its generation capacity by 2025.39
Vietnam’s road map is being developed in stages, with the second phase spanning 2030-2040 to develop and produce 3.5 million EVs, and the third phase spanning 2040-2050 to increase production to 4-4.5 million EVs. 40
As with China, the world’s largest vehicle producer and the country with the largest shares of EV sales, it has taken a milestone step of halting new gas-powered car sales by 2035 to focus on producing energy-efficient vehicles such as EVs, plug-in hybrids, and fuel cell models in line with its commitment to achieve zero emissions by 2060.41
K 2022 – the world’s most important trade fair for the industry
In 2022, as every three years, K in Düsseldorf will once again be the most important information and business platform for the global plastics and rubber industry. Nowhere is the internationality as high as in Düsseldorf. Exhibitors and visitors from all over the world will come together and take advantage of the opportunities from 19 to 26 October this year not only to demonstrate the industry’s capabilities and present innovations, but also to exchange views on the situation of the plastics and rubber industry in the various regions of the world, discuss current trends and jointly set the course for the future.