Plastics Shortage Ignites Prices
The plastic pellets that go into a vast universe of products ranging from cereal bags to medical devices, automotive interiors to bicycle helmets.
Like other manufacturers, petrochemical companies have been shaken by the pandemic and by how consumers and businesses responded to it. Yet petrochemicals have also run into problems all their own: A freak winter freeze in Texas. A lightning strike in Louisiana. Hurricanes along the Gulf Coast.
The price of epoxy resins, used for coatings, adhesives and paints, has soared 170%. Ethylene — arguably the world’s most important chemical, used in everything from food packaging to antifreeze to polyester — has surged 43%, according to ICIS figures.The root of the problem has become a familiar one in the 18 months since the pandemic ignited a brief but brutal recession: As the economy sank into near-paralysis, petrochemical producers, like manufacturers of all types, slashed production. So they were caught flat-footed when the unexpected happened: The economy swiftly bounced back, and consumers, flush with cash from government relief aid and stockpiles of savings, resumed spending with astonishing speed and vigor.
Suddenly, companies were scrambling to acquire raw materials and parts to meet surging orders. Panic buying worsened the shortages as companies rushed to stock up while they could.
Then, in February, a winter storm hit Texas, with its many oil refining and chemical manufacturing facilities. Millions of households and businesses, including the chemical plants, lost power and heat. Pipes froze. More than 100 people died.
A July lightning strike temporarily shut down a plant in Lake Charles, Louisiana, that makes polypropylene, used in consumer packaging and auto manufacturing.
The industry was just beginning to recover when Hurricane Ida struck the Gulf Coast in August, once again damaging refineries and chemical plants. As if that weren’t enough, Tropical Storm Nicholas caused flooding.
The chemical shortages, combined with a near-doubling of oil prices in the past year to $75 a barrel of U.S. benchmark crude, mean higher prices for many goods.
The problems in the petrochemical supply chain have been compounded by shortages of labor and shipping containers and by overwhelmed ports. Some Asian ports have been shut down by COVID-19 outbreaks. In the United States, ports like the one in Long Beach, California, are struggling with backlogs of ships waiting to be unloaded.
It’s also forcing manufacturers to rethink some of their practices. They also held down expenses by keeping inventories to a minimum. Using a “just-in-time” strategy, they bought materials only as needed to fill orders. But as the recession and recovery showed, keeping inventories threadbare carries risk.
Analysts expect the petrochemical crunch to last well into 2022.You really have to put COVID truly in the rearview mirror for this logistics situation to normalize. You can’t simply just throw more ships and more containers on the water.