In an economy upended by the coronavirus, shortages and price spikes have hit everything from lumber to computer chips to toilet paper.
Now, a shortage of industrial chemicals is 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. And petrochemicals, which are made from oil, also have been hit again and again by problems all their own.
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 of these essential chemicals.
“It’s kind of whack-a-mole,” said Jeremy Pafford of Independent Commodity Intelligence Services, which analyzes energy and chemical markets. “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 — PVC — that’s used for pipes, medical devices, credit cards, vinyl records and more has rocketed 70%, according to ICIS.
The price of epoxy resins, used for coatings, adhesives and paints, has soared 170%.
The price of ethylene — arguably the world’s most important chemical, used in everything from food packaging to antifreeze to polyester — has surged 43%.
As the economy sank into near-paralysis at the start of the pandemic, petrochemical producers, like manufacturers of all types, slashed production. So they were caught flat-footed when the economy swiftly bounced back, and consumers, flush with cash from government relief aid and stockpiles of savings, resumed spending with astonishing speed.
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.
Against the backdrop of tight supplies and surging demand last year, Hurricanes Laura and Zeta pounded Louisiana, a hub of petrochemical production.
Then, in February, a winter storm that killed more than 100 people hit Texas, with its many oil refining and chemical manufacturing facilities. Millions of households and businesses, including chemical plants, lost power and heat.
A July lightning strike temporarily shut down a plant in Lake Charles, Louisiana, 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, again damaging refineries and chemical plants.
“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.
Ford Motor Co., hampered by a shortage of computer chips, is now running short of other parts, too, some based on petrochemicals, and expects “to continue to have supply chain challenges for the foreseeable future,” CEO Jim Farley said.
The shortages are slowing production at two leading paint makers — Sherwin-Williams and PPG. Both have raised prices and say the outlook for additional supply remains dim.
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.
In Washington, D.C., a W.S. Jenks & Son hardware store is receiving only 20% to 30% of the paint it needs to meet demand.
“Nobody’s happy about it,” said Billy Wommack, the store’s purchasing director. “There are a lot of ‘I’m sorrys’ out there.”
The paint shortage is generally felt most by big contractors that need, say, the same color paint for numerous apartment complexes and other major projects.
With plastics, iImagine trying to market breakfast cereal without a cheap plastic bag to hold corn flakes or wheat bran.
“You can’t just dump the cereal into the cardboard and ship it,” said Bindiya Vakil, CEO of the supply chain consultancy Resilinc. “The plastic bag is just as critical an ingredient as the actual [product] and the cardboard and everything else. But supply chain practitioners traditionally have not considered it to be just as critical. And nowadays plastics are ubiquitous.”
Market analysts expect the petrochemical crunch to last well into 2022.
“You really have to put COVID truly in the rear-view mirror for this logistics situation to normalize,” Pafford said. “You can’t simply just throw more ships and more containers on the water. ... We’ve got to get them loaded. If ports are going to be shut down because of a COVID lockdown — good luck.’’
