From paints to plastics, a chemical shortage ignites prices
Like other manufacturers, petrochemical companies have been shaken by the pandemic and by how consumers and businesses responded to it.
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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 also 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 (ICIS), which analyzes energy and chemical markets. “It’s kind of whack-a-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 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.
“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.”
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. CEO John Morikis said Sherwin-Williams raised prices in the Americas by 7% in August and an additional 4% this month. More increases are possible next year, he said.
It’s also forcing manufacturers to rethink some of their practices. For decades, companies moved production to China to capitalize on lower labor costs. 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.
“Supply chains have changed forever,” said Bindiya Vakil, CEO of the supply chain consultancy Resilinc.