Supply shortage

From paints to plastics, chemical shortage is igniting prices – Daily News

By PAUL WISEMAN and TOM KRISHER

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 also encountered 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, North American market development manager at Independent Commodity Intelligence Services (CIHI), which analyzes the energy and chemicals markets. “It’s kinda crazy, something’s wrong, it works out, then something else happens. And so it has been 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 CIHI.

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. “The stocks are thin and the supply is low. Demand will exceed growth in supply.

Amid tight supply and growing demand, a series of events hit Pafford as Murphy’s Law in action: Everything 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, CEO 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.”

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. CEO John Morikis said Sherwin-Williams raised prices in the Americas 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 US 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.

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 back-end customer demand. Normally, this rate usually reaches 90%, explains Billy Wommack, the purchasing manager.

“Nobody’s happy with this,” Wommack said. “There’s a lot of ‘I’m sorry’ out there.”

The shortage is usually felt mostly by large contractors who need, for example, the same color of paint for many apartment complexes and other large projects. Individual owners can generally be more flexible.

Duval Paint & Decorating, with three stores in the Jacksonville, Fla. Area, scrambles to fill orders, especially for large contractors who need a lot of paint, said John Cornell, a salesperson who orders paint for stores.

“We’re having a hard time,” Cornell said. “Sometimes you have to grab products and sit on them for weeks or months so that when the labor starts, we have it.”

Andrew Moore, an employee at Ricciardi Brothers in Philadelphia, said the store is short of substandard paints used by large contractors, although there is an abundant supply of higher grades. Demand is so strong that the store is having a record year, with sales up 20% from last year. Prices can be as high as 15% for some brands, Moore said.

Problems in the petrochemical supply chain have been compounded by labor and shipping container shortages and overwhelmed ports. Some Asian ports have been closed due to COVID-19 outbreaks. In the United States, ports like Long Beach, Calif., Are struggling with backlogs of ships awaiting unloading.

“I think this is going to go on for a very long time because there are so many factors at play here,” said Kaitlin Wowak, professor of management at the University of Notre Dame. “And it’s generalized in many products. “

It is also forcing manufacturers to rethink some of their practices. For decades, companies have moved production to China to take advantage of falling labor costs. They also kept expenses down by keeping stocks to a minimum. Using a “just in time” strategy, they purchased materials only as needed to fulfill orders. But as the recession and recovery have shown, keeping stocks tight comes with risk.

“Supply chains have changed forever,” said Bindiya Vakil, CEO of supply chain consultancy Resilinc.

The old management philosophy, she said, was to “do everything at the lowest possible price… What we’re dealing with right now is a consequence of those decisions. Companies have lost hundreds of millions, in some cases billions of dollars in (forfeited) profits because of it, because their supply chains have failed.

The petrochemical experiment, Vakil said, will teach companies how to watch the lowest links in their supply chains. It’s always easier, she said, to just track big-ticket items – engines, for example, or electronics.

But simple plastics are also essential. Imagine trying to market breakfast cereal without a cheap plastic bag to hold corn flakes or wheat bran.

“You can’t just dump the grain in the box and ship it,” Vakil says. “The plastic bag is just as essential an ingredient as the actual (product) and the carton and everything in between. But supply chain practitioners have traditionally not viewed it as equally critical. And nowadays, plastics are everywhere.

Analysts expect the petrochemical crisis to last until 2022.

“You really have to put COVID really in the rearview mirror for this logistical situation to normalize,” Pafford said. “You can’t just throw more ships and more containers on the water. … We have to charge them. If the ports need to be closed due to a COVID lockdown, good luck. ‘

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Wiseman reported from Washington, Krisher from Detroit.

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This story has been corrected to show that Jeremy Pafford is not Editor-in-Chief for the Americas at Independent Commodity Intelligence Services (CIHI). His correct title at ICIS is Head of North America, Market Development.


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