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Breakingviews

Breakingviews - Face mask boom has unhealthy side effects

HONG KONG (Reuters Breakingviews) - The outbreak of Covid-19 is the best thing that ever happened to the mask industry, but it’s going to require a bit of cleaning up. Side effects of the boom include diplomatic spats, quality scandals, price gouging, and fraud. Dealing with excess capacity and a rising mountain of polypropylene waste will be a headache.

FILE PHOTO: A restaurant employee wears a protective face shield and mask due to the coronavirus disease (COVID-19) outbreak in Moscow, Russia July 8, 2020. REUTERS/Maxim Shemetov/File Photo

Fear of illness is a reliable driver of consumption. With officials desperate to supply frightened constituents, companies with the right machinery quickly converted factory lines to churn out protective personal equipment, better known as PPE. Minnesota-based 3M said demand for N95 masks in the U.S. healthcare sector surged to as much as 40 times pre-pandemic levels. At the same time an army of middlemen, speculators and fraudsters leapt into action to fill unmet orders.

The United Nations Conference on Trade and Development projects annual mask sales will increase over 200 times to $166 billion in 2020. That might not be enough to sate the current market. Globally, 3M has doubled production of its N95 respirators since January, and is on track to produce 2 billion respirators by the end of 2020. But the company believes demand for N95s and other respirators still exceeds the entire industry’s capacity.

China already accounted for about half of the world’s mask production at the start of the crisis, according to the Organisation for Economic Co-operation and Development. It may well account for more now given how quickly its nimble factory managers pivoted to making PPE. Chinese electric-car maker BYD, for example, snapped into action and signed supply deals with Japan’s SoftBank and the state of California, among others; it now says it is the world’s largest mask-maker. U.S. retailer Gap sold $130 million worth of face masks in the second quarter.

The pandemic also spurred the creation of better-looking, if less medically effective, products, including breathable sports masks and fashion statements like Louis Vuitton’s gold-studded face shield.

BOOM AND BUST

The struggle over supply saw many countries put export restrictions into place, which created big returns for smugglers. Shortages encouraged amateurs and scammers to jump into the industry with predictable results. One industry insider told Breakingviews that in the early phases of the outbreak, a small business could set up a simple production line for around $200,000 in as little as two weeks; the output from such operations often ended up flunking quality control tests. There are also plenty of middlemen, not all of them qualified or honest, who connected customers with suppliers for a fee. More than 6 million surgical masks bearing a counterfeit trademark name were procured by the Hong Kong government in March, about half of which were distributed, according to the South China Morning Post.

There will be an environmental cost to bear. Around 75% of coronavirus-related plastic — including used masks designed for single use – will pour into landfills, rivers and oceans. That is an enormous amount of petroleum-based fabric; in April China churned out nearly 1 billion masks per day, according to data in a report by the state-owned People’s Daily. Many of the millions of discarded masks have begun swamping beaches and nature trails in Hong Kong.

And while it seems base consumption will remain higher than it was before the pandemic, especially if mask-wearing in public becomes more routine, it is also unlikely to remain anywhere near the current hysterically elevated levels. Governments with declining case counts are already starting to re-focus on securing vaccines instead of defending their PPE stockpiles. As economic activity normalises, nearly every other sector will benefit apart from masks, which may end up in a glut. That will be hard on smaller manufacturers who pivoted into masks because their other business lines weren’t doing well, and it might also be a tough transition for companies and carmakers like BYD, given the padding masks provided against slowing growth in their core business.

The global scramble to meet the demand shortfall has been impressive. But as governments look forward to a cure, they might want to address some of the lingering side effects of fighting off the virus too.

Breakingviews

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.


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