In an economy confused by the coronavirus, shortages and rising prices have hit everything from timber to computer chips. I didn’t even run away from the toilet paper.
Today, they are cutting into one of the most humble yet most important links in the world’s manufacturing supply chain. From cereal bags to medical devices, car interiors and bicycle helmets, these are plastic pellets that enter the vast world of products.
Like other manufacturers, petrochemical companies are upset by the pandemic and how consumers and businesses respond to it. Still, petrochemicals made from petroleum are also running into problems one after another. An unusual winter freeze in Texas. Lightning strike in Louisiana. A hurricane along the Gulf Coast.
Everything has colluded to disrupt production and raise prices.
Jeremy Pafford, Editor-in-Chief of the Americas of Independent Commordity Intelligence Services (ICIS), which analyzes the energy and chemical markets, said: When organized, something else happens. And that’s been the case since the pandemic began. “
The price of PVC or PVC used in pipes, medical devices, credit cards, vinyl records, etc. has skyrocketed by 70%. The prices of epoxy resins used in coatings, adhesives and paints have risen 170%. According to ICIS figures, ethylene (probably the most important chemical in the world, from food packaging to antifreeze to polyester) has skyrocketed by 43%.
The root of the problem became a familiar problem 18 months after igniting a short but brutal recession. As the economy approached paralysis, petrochemical producers, such as manufacturers of all kinds, cut production. As a result, they were dragged when something unexpected happened. The economy recovered rapidly, consumers were filled with cash from government relief supplies and savings reserves, and spending resumed at an astonishing speed and vitality.
Suddenly, companies were struggling to get raw materials and parts to meet the surge in orders. The hoarding exacerbated the shortage as companies rushed inventories as quickly as possible.
“This is a very strange scenario,” said Hassan Ahmed, a chemistry analyst at research firm Alembic Global Advisors. “Inventory is low, supply is low. Demand outpaces supply growth.”
Against the backdrop of tight supply and soaring demand, a series of events struck Pufford while Murphy’s Law was being implemented. In 2020, Hurricane Laura and Zeta struck Louisiana, a petrochemical hub.
Then, in February, a winter storm struck Texas, where many oil refineries and chemical manufacturing facilities are located. Millions of homes and businesses, including chemical plants, have lost electricity and heat. The pipe froze. Over 100 people have died.
A lightning strike in July temporarily closed a factory in Lake Charles, Louisiana, which manufactures polypropylene for consumer packaging and automobile manufacturing.
When Hurricane Aida struck the Gulf Coast in August, the industry was just beginning to recover, again damaging refineries and chemical plants. As if that wasn’t enough, the tropical cyclone Nicholas caused floods.
Bridget Badral, a professor of plastic engineering at the University of Massachusetts Lowell, said:
Tom Delhi, CEO of the Institute for Supply Management, an association of purchasing managers, said:
“This year was the most difficult year for logistics and supply chain managers,” says Pafford. “They always say that the most stressful job in the world is an air traffic controller at any airport … Being a supply chain manager dares to say that this year, or worse. increase.”
Suffering from a shortage of computer chips across the industry, Ford Motor Company is now short of other components, some of which are based on petrochemicals.
“As a business leader, I think we should expect supply chain challenges to continue for the foreseeable future,” CEO Jim Farley said in an interview with The Associated Press.
The shortage is delaying the production of two major paint makers, Sherwin-Williams and PPG. Both raised prices, downgraded sales guidance, and said the outlook for additional supply remained bleak.
Sherwin-Williams reported strong profits in the second quarter, but said sales fell 3.5% during the period due to a shortage of raw materials. CEO John Morikis said Sherwin-Williams raised prices in the Americas by 7% in August and another 4% this month. He said it could increase further next year.
A shortage of chemicals means that prices for many commodities have risen, coupled with oil prices nearly doubling over the past year to $ 75 a barrel of US benchmark crude. ..
“Consumers will have to pay,” said Bill Seleski, a chemistry analyst at Argus Research, and many households armed with cash with government support and savings reserves are pleased with higher prices. Suggested that I would pay at.
During that time, supply issues have not improved. The WS Jenks & Son hardware store in Washington, DC receives only 20% to 30% of the paint needed to meet customer demand without backorders. That rate is usually 90%, says Purchasing Director Billy Wommack.
“No one is happy with it. There are a lot of’I’m sorry’,” Womak said.
Shortages are generally most felt, for example, by large contractors who need the same color paint for numerous apartments and other major projects. Individual homeowners can usually be more flexible.
Duval Paint & Decorating, with three stores in Jacksonville, Florida, is struggling to process orders, especially for large contractors who need large amounts of paint, says John Cornell, a clerk ordering store paint. Mr. said.
“We are having a hard time,” Cornell said. “Sometimes you have to grab the products and sit on them for weeks or months so that we can get it when work starts.”
Andrew Moore, a clerk at Ricciardi Brothers in Philadelphia, said there was a shortage of low quality paints used by large contractors, but there is a good supply of high quality paints here. Due to the high demand, the store has reached a record high and sales have increased by 20% compared to last year. Prices for some brands have risen by as much as 15%, Moore said.
Petrochemical supply chain problems are exacerbated by labor and shipping container shortages and overwhelming ports. Some Asian ports were closed due to the outbreak of COVID-19. In the United States, ports like Long Beach, California are suffering from unprocessed vessels waiting to be unloaded.
Kaitlin Wowak, a professor of business administration at the University of Notre Dame, said: “And that’s done entirely in so many products.”
It also forces manufacturers to rethink some of their practices. For decades, companies have moved production to China to take advantage of lower labor costs. We also kept costs down by keeping inventory to a minimum. Using a “just-in-time” strategy, they purchased materials only when needed to meet their orders. However, as the recession and recovery have shown, leaving inventories exposed carries risks.
“The supply chain has changed forever,” said Bindiya Vakir, CEO of supply chain consultancy Resilinc.
According to her, the old management philosophy was “to make everything happen at the lowest possible price … what we are currently dealing with is the result of these decisions, because the supply chain has failed. , Companies have lost hundreds of millions of dollars, and in some cases billions of dollars, to that. “
Petrochemical experience will teach companies to monitor the lowest links in the supply chain, Bakir said. She said it’s always easier to track only high-priced items such as engines, such as electronics.
But simple plastic is also essential. Imagine trying to sell breakfast cereals without cheap plastic bags for cornflakes and wheat bran.
“We can’t throw cereals into cardboard and ship them,” says Vakir. “Plastic bags are just as important an ingredient as everything in a real (product) or cardboard, but supply chain practitioners traditionally didn’t think it was just as important. And today. , Plastic is everywhere. “
Analysts expect the petrochemical crunch to continue until 2022.
“To normalize this logistics situation, we really need to put the COVID in the rearview mirror,” says Pafford. “You can’t just throw more ships or containers into the water … you have to load them. Good luck if the port shuts down due to the COVID blockade.”
Wiseman reported from Washington and Chrischer from Detroit.