The scarcity list adds petrochemicals
In an economy shattered by the coronavirus, shortages and price spikes have affected everything from wood to computer chips. Even the toilet paper did not escape.
Today, they are cutting one of the humblest but most vital links in the global manufacturing supply chain: plastic granules that go into a vast universe of products ranging from grain bags to medical devices, from automobile interiors to bicycle helmets.
Like other manufacturers, petrochemical companies have been rocked by the pandemic and the way consumers and businesses have responded to it. Yet petrochemicals, which are made from petroleum, have faced their own problems, one after another: an abnormal winter freeze in Texas. Love at first sight in Louisiana. Hurricanes along the Gulf Coast.
All of them conspired to disrupt production and raise prices.
“There is nothing wrong,” said Jeremy Pafford, senior editor for the Americas at Independent Commodity Intelligence Services, which analyzes the energy and chemicals markets. “It’s a bit of a mole hit – something’s wrong, it fixes itself, then something else happens. And it’s been like that since the start of the pandemic.”
The price of polyvinyl chloride or PVC, used for pipes, medical devices, credit cards, vinyl records and more, has climbed 70%. The price of epoxy resins, used for coatings, adhesives and paints, has climbed 170%. Ethylene – arguably the world’s most important chemical, used in everything from food packaging to antifreeze to polyester – has jumped 43%, according to figures from the service.
The root of the problem has become familiar in the 18 months since the pandemic triggered a brief but brutal recession: As the economy slumped into virtual paralysis, petrochemical producers, like manufacturers of all types, have scaled back their production. So they were caught off guard when the unexpected happened: the economy quickly rebounded and consumers, filled with money from government humanitarian aid and savings reserves, started spending with it again. amazing speed and vigor.
Suddenly, companies were scrambling to acquire raw materials and spare parts to meet rising orders. Panic buying exacerbated shortages as businesses rushed to stock up while they could.
“It’s such a bizarre scenario,” said Hassan Ahmed, chemical analyst at Alembic Global Advisors, a research firm. “Inventories are thin and supply is low. Demand will exceed growth in supply.”
Amidst tight supply and growing demand, a series of events hit Pafford as Murphy’s Law in action: Anything that could go wrong did. In 2020, Hurricanes Laura and Zeta hit Louisiana, a hub for petrochemical production.
Then, in February, a winter storm hit Texas, with its many petroleum refining and chemical manufacturing facilities. Millions of households and businesses, including chemical factories, have lost electricity and heat. The pipes froze. More than 100 people died.
A lightning strike in July temporarily closed a plant in Lake Charles, Louisiana, which manufactures polypropylene, used in consumer packaging and automotive manufacturing.
The industry was just starting to recover when Hurricane Ida hit the Gulf Coast in August, again damaging refineries and chemical plants. As if that weren’t enough, Tropical Storm Nicholas caused flooding.
“Some of these downstream petrochemical plants in the Gulf Coast regions are still closed due to Hurricane Ida,” said Bridgette Budhlall, professor of plastics engineering at the University of Massachusetts-Lowell.
“Everything about basic chemicals – they’ve had one hell of a year,” said Tom Derry, chief executive of the Institute for Supply Management, an association of purchasing managers.
“It has been the most difficult year for logistics and supply chain managers,” said Pafford. “They always say that the most stressful job in the world is to be an air traffic controller at any airport… I would venture to say that being in charge of the supply chain is this – or worse – this. year.”
In the meantime, the supply problem is not improving. A WS Jenks & Son hardware store in Washington, DC, receives only 20-30% of the paint it needs to meet customer demand without reviewing orders. Normally, that rate is typically 90%, said Billy Wommack, the purchasing manager.
“Nobody’s happy with this,” Wommack said. “There’s a lot of ‘I’m sorry’ out there.”
AFFECTED CARS, PAINT PRODUCTS
Ford Motor Co., hampered by an industry-wide shortage of computer chips, is also lacking other parts, some made from petrochemicals.
“I think we should expect, as business leaders, to continue to have supply chain issues for the foreseeable future,” CEO Jim Farley said in an interview with The Associated Press.
Shortages are slowing production at two major paint manufacturers, Sherwin-Williams and PPG. Both have raised their prices and lowered their sales forecasts, saying the prospects for further supply remain dim.
Although Sherwin-Williams reported strong second-quarter earnings, it said a shortage of raw materials reduced sales by 3.5% for the period. Chief Executive John Morikis said the company raised prices by 7% in August and a further 4% this month. Further increases are possible next year, he said.
Shortages of chemicals, combined with a near doubling in oil prices over the past year to $ 75 a barrel of U.S. benchmark crude, mean higher prices for many commodities.
“The consumer is going to have to pay,” said Bill Selesky, chemical analyst for Argus Research, who suggested that many households, armed with government aid money and accumulated savings, would be willing to pay. higher prices.