Scarcity list adds petrochemicals
Shortage raises cost of everyday items from paints to plastics
In an economy upended by the coronavirus, shortages and price spikes have hit everything from lumber to computer chips. Not even toilet paper escaped.
Now, they’re cutting into one of the humblest yet most vital links in the global manufacturing supply chain: 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, which are made from oil, have run into problems all their own, one after another: A freak winter freeze in Texas. A lightning strike in Louisiana. Hurricanes along the Gulf Coast.
All have conspired to disrupt production and raise prices.
“There isn’t one thing wrong,” said Jeremy Pafford, managing editor for the Americas at Independent Commodity Intelligence Services, which analyzes energy and chemical markets. “It’s kind of whacka-mole — something goes wrong, it gets sorted out, then something else happens. And it’s been that way since the pandemic began.”
The price of polyvinyl chloride or PVC, used for pipes, medical devices, credit cards, vinyl records and more, has rocketed 70%. 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 the service’s 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.
“It’s such a bizarre scenario,” said Hassan Ahmed, a chemicals analyst with Alembic Global Advisors, a research firm. “Inventories are lean, and supply is low. Demand will exceed supply growth.”
SERIES OF SETBACKS
Against the backdrop of tight supplies and surging demand came a series of events that struck Pafford as Murphy’s Law in action: Anything that could go wrong did. In 2020, Hurricanes Laura and Zeta pounded Louisiana, a hub of petrochemical production.
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, La., 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.
“Some of these downstream petrochemical plants in the Gulf Coast regions are still shut down from Hurricane Ida,” said Bridgette Budhlall a professor of plastics engineering at the University of Massachusetts-Lowell.
“Anything related to base chemicals — they’ve had a hell of a year,” said Tom Derry, chief executive officer of the Institute for Supply Management, an association of purchasing managers.
“It’s been the hardest year for logistics and supply chain managers,” Pafford said. “They always say the most stressful job in the world is being an air traffic controller at any airport … I’d venture to say that being a supply chain manager is that — or worse — this year.”
In the meantime, the supply problem isn’t getting any better. A W.S. Jenks & Son hardware store in Washington, D.C., is receiving only 20% to 30% of the paint it needs to meet customer demand without back-ordering. In normal times, that rate usually runs 90%, said Billy Wommack, the purchasing director.
“Nobody’s happy about it,” Wommack said. “There are a lot of ‘I’m sorrys’ out there.”
CARS, PAINT PRODUCTS HIT
Ford Motor Co., hampered by an industrywide shortage of computer chips, is now running short of other parts, too, some of them based on petrochemicals.
“I think we should expect, as business leaders, to continue to have supply-chain challenges for the foreseeable future,” CEO Jim Farley said in an interview with The Associated Press.
The shortages are slowing production at two leading paint makers, Sherwin-Williams and PPG. Both have raised prices and downgraded their sales guidance, saying the outlook for additional supply remains dim.
Though Sherwin-Williams reported strong second-quarter profits, it said that a lack of raw materials cut sales by 3.5% for the period. Chief executive John Morikis said the company raised prices by 7% in August and an additional 4% this month. More increases are possible next year, he said.
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 consumer is going to have to pay,” said Bill Selesky, a chemicals analyst for Argus Research, who suggested that many households, armed with cash from government aid and built-up savings, will be willing to pay higher prices.