Through the years, we have seen the resin market weather storms of all types and severity. Hurricanes, petrochemical and plant fires, tariff wars, economic crises, sudden plant outages, wild swings in costs — these are just some of the many disruptive forces that have battered this market and left lasting effects. Today is no different. The resin market continues to face monumental challenges. Over the course of this past year alone, a series of significant and simultaneous events have shaken the industry to its core, in what can only be called a Perfect Storm.
Over a half-dozen U.S. resin producers continue to experience force majeure conditions. Back in February, the winter storm that swept the nation either stalled or altogether shut down 80% to 85% of U.S. resin production. Once production resumed, the industry faced significant obstacles in procuring and delivering essential production resources, such as gases, feedstocks, co-monomers, catalysts, as well as equipment and repair personnel. These critical shortages severely hindered the industry’s return to normal production. The consequence of this storm and a still sluggish recovery remain all too apparent: Dozens of plants along the supply chain have had to initiate restarts, while others are still largely offline due to protracted shutdowns and complications. All told, these compounded events could ultimately lead to a loss of over five billion pounds of resin production, creating severe shortages, in particular, for polyethylene (PE) and polypropylene (PP) resins.
This unprecedented supply and demand imbalance has provoked dramatic increases in prices across materials, and have drastically pushed out lead times. PE and PP prices especially have seen steady increases within the past few months, reaching heights heretofore unseen.
Foreign imports were sought to offset the domestic resin shortfall, and ships loaded with resin have been reaching U.S. ports. Soaring ocean freight rates from Asia, however, have largely impacted the import arbitrage, reducing incentives as well as the incoming flow of material to the Americas. Persistent and widespread shutdowns, coupled with resurgent post-quarantine consumer demand, have conspired to further disrupt supply chains, while currency fluctuations and lopsided world trade continue to displace shipping containers. Such ongoing logistics dilemmas contributed to massive spikes in ocean freight costs, which further shifted regional trade patterns and resin supply/demand dynamics. Even as U.S. resin prices skyrocket, Latin American demand for U.S. resin has stayed strong. PE shipments to Mexico are expected to remain at high levels. As such, Latin America has been the export hotspot for incremental pounds from the U.S., especially as Asian orders slowed ahead of the Chinese New Year.
Yet, these massive effects could very well leave the resin market forever changed. According to industry analysts, although conditions could eventually normalize, as industry orders based on price-sensitive elastic demand increasingly fall away, there will be plenty of new inelastic demand to take its place — which was not even a consideration just a short time ago. Case in point: billions of face masks and syringes made from PP. With what the government and insurance companies are currently paying for vaccines, does it truly make a difference if the small amount of resin required to make the syringe costs $0.18, or $0.35, or even $5?
When you take into consideration the fact that resin costs constitute roughly 48% to 53% of the total cost of plastic injection molded parts, molders will most likely just pass these increases along. Lead time will also continue to be pushed out. Production that would have normally required a six-week lead time in the past will now extend out to 12 weeks. Some plastics molding houses, specifically for the connector industry (Molex, TE Connectivity and others), have already started to request that their customers confirm demands for the coming months in order to minimize further supply chain disruptions.
As time goes on, it will be interesting to see just how compelling and industry-changing this perfect storm of resin will have proven to be.
By: Gil Lopez, Commodity Manager- Mechanical, Creation Technologies