Manufacturers of resins used in everything from plastic straws to industrial pipes, auto parts and heart valves face rising prices and supply chain disruptions that could linger for years.The pandemic is only part of the reason.
This year alone, a reduction in resin supply has pushed up virgin resin prices by 30% to 50%, according to consultancy AlixPartners.One of the biggest drivers of the surge in resin prices this year has been a winter storm that essentially shut down Texas for part of February.
Resin producers in Texas and Louisiana have taken weeks to start resuming production, and even now, many are still under force majeure procedures.As a result, demand for resin far outstrips supply, leaving manufacturers scrambling to buy polyethylene, PVC, nylon, epoxy, and more.
Texas is home to 85% of U.S. production of polyethylene, the most used plastic in the world.Shortages caused by winter storms have been exacerbated by a busy Gulf hurricane season.
“During hurricane season, manufacturers have no room for error,” said Sudeep Suman, director of AlixPartners.
All of this comes on top of an ongoing pandemic that continues to slow factories as demand for everything from medical-grade resins and personal protective equipment to plastic silverware and delivery bags increases dramatically Production.
Currently, more than 60% of manufacturers report resin shortages, according to AlixPartners survey data.It expects the problem could persist for up to three years until capacity catches up with demand.Suman said some relief could begin as early as the end of the year, but even then other threats will always emerge.
Since resin is a by-product of the petroleum refining process, anything that causes a drop in refining activity or fuel demand could trigger a domino effect, making resin harder to find and more expensive.
Storms, for example, can knock out refinery capacity almost at any time.Refineries in southern Louisiana idled plants as Hurricane Ida swept through the state and its petrochemical hub.On Monday, the day after the Category 4 hurricane made landfall, S&P Global estimated that 2.2 million barrels a day of refining capacity were offline.
The growing popularity of electric vehicles and the pressures of climate change could have a domino effect, leading to lower oil production and less resin produced as a by-product of that production.Political pressure to abandon oil drilling could also spell trouble for resin makers and those who depend on them.
“The disruption cycle is replacing the economic cycle,” Suman said.”Disruption is the new normal. Resin is the new semiconductor.”
Manufacturers needing resins now have few options or alternatives.Some producers may be able to substitute recycled resin.However, their savings may be limited.Even regrind resin prices have risen 30% to 40%, Suman said.
Manufacturers of food-grade products have specific requirements that limit their flexibility to substitute components.Industrial manufacturers, on the other hand, have more options, although any process changes may introduce increased production costs or performance issues.
Suman says that when a particular resin is the only option, viewing supply chain disruptions as the new status quo is key.That could mean planning ahead, paying more for storage and holding more inventory in warehouses.
Ferriot, an Ohio-based company whose expertise includes injection molding and resin selection, advises its customers to approve multiple resins for use in its products to allow for choice in the event of a shortage.
“This affects anyone who makes plastic parts – from consumer products to industrial products,” said Ferriot customer service and marketing manager Liz Lipply.
“It’s really controlled by the manufacturer and the availability of raw materials from which to make the resin,” she said.
While the pandemic has caused severe shortages of commodity resins such as polyethylene, manufacturers using engineering resins have largely been spared until this year, she said.
Now, however, estimated delivery times for many types of resins have been extended from a maximum of a month to a maximum of a few months.Ferriot advises clients to invest in developing relationships with suppliers, not only planning ahead but also planning for any other disruptions that may arise.
At the same time, manufacturers may have to make some tough decisions about how to deal with increased material costs.
This story was first published in our weekly newsletter, Supply Chain Dive: Procurement.Register here.
Topics covered: Logistics, Freight, Operations, Procurement, Regulatory, Technology, Risk/Resilience, etc.
Companies have expanded sustainability efforts after the pandemic showed how disruptions can wreak havoc on supply chains.
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Topics covered: Logistics, Freight, Operations, Procurement, Regulatory, Technology, Risk/Resilience, etc.
Topics covered: Logistics, Freight, Operations, Procurement, Regulatory, Technology, Risk/Resilience, etc.
Topics covered: Logistics, Freight, Operations, Procurement, Regulatory, Technology, Risk/Resilience, etc.
Topics covered: Logistics, Freight, Operations, Procurement, Regulatory, Technology, Risk/Resilience, etc.
Companies have expanded sustainability efforts after the pandemic showed how disruptions can wreak havoc on supply chains.
Operators laid out plans to reduce operating inventory and increase hiring during emergency hearings.But executives noted that mitigation could take months.
Topics covered: Logistics, Freight, Operations, Procurement, Regulatory, Technology, Risk/Resilience, etc.