It’s cheaper to manufacture plastic products in Ohio than in China

The world isn’t as flat as it used to be. Back in 2005 when The World is Flat: A Brief History of the 21st Century by Thomas Friedman hit bookstores, the twin triumphs of globalization and China’s rise to the workshop of the world seemed an unstoppable force. The view from the perspective of 2022 looks very different, and a report by Shale Crescent USA (SCUSA), released last month, argues that offshoring is an exhausted force.

“China has lost its competitive advantage in manufacturing, and the $25 billion worth of plastic-based goods exported annually from China represents a vulnerable and accessible market share opportunity for U.S. companies,” the report’s executive summary said. The long-held belief that it is cheaper to import plastic products is no longer true because, as the summary states, “raw materials/resin and transport are the biggest cost drivers of globally produced plastic-based goods”. As a regular reader of our resin price report, this will not come as news. While some of these trends have been exacerbated by the pandemic and supply chains are still suffering its shockwaves, the SCUSA report claims this shift is not temporary. “Close proximity to low-cost raw materials and direct access to consumer markets offer US manufacturers significant cost advantages over China-based competitors,” the summary reads. “These changes are fundamental, long-term and will continue for the foreseeable future,” she adds.

Well, it’s worth noting that SCUSA is not an unbiased observer. It is a non-profit organization formed in 2016 to promote the Ohio, Pennsylvania and West Virginia region, located on the Marcellus and Utica natural gas fields, considered the most productive of this type in the United States. (That Shell cracker plant near Pittsburgh, which started operations last month, uses ethane from shale gas producers in the Marcellus and Utica Basins. It is the first major polyethylene production complex in the Northeastern United States.)

While SCUSA has a dog in the US-China fight, that doesn’t mean the claims in this report are baseless. Astronomical shipping costs, a crippled supply chain, and China’s bizarre zero-COVID policy – a self-inflicted wound for manufacturing and trade – have clearly radically changed the offshoring calculus. The question is, I suppose, is this a permanent reset or a temporary relocation. We know where SCUSA lands on this question. But I don’t think that’s the only consideration.

If we can build it here, we should, because we just shouldn’t be complicit in China’s ambitions. As documented by Clare Goldsberry in plastics today In the years before her retirement in countless articles, China does not respect intellectual property rights. More recently, it has become a bellicose force, crushing dissent in Hong Kong, driving minorities into “re-education” camps and threatening Taiwan’s status.

Also, according to the SCUSA report, it doesn’t even make economic sense to manufacture products in China and ship them here. Milacron helped the organization develop a “Manufacturing Cash Flow Cost Model” that compares the cost of manufacturing plastic products in Ohio versus China. As the chart below shows, domestic production can be very competitive and in some cases even cheaper when transportation is taken into account. The cost model is available to processors and can be customized to accommodate specific operational considerations, according to SCUSA.

Image courtesy of Shale Crescent USAChart showing manufacturing costs in China versus Ohio

Brand owners and other companies doing business in China should do themselves a favor and read this comprehensive, well-documented read report. Then ask yourself: Why am I over there?

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