Plastics: price increases and supply difficulties

Plastic industry is suffering because of both the increased price of raw materials and supply difficulties do to the pandemic emergency.

The global pandemic has brought many businesses across all sectors to their knees.

Since fall 2020, high polymer prices have begun to rise in Europe and are expected to continue rising due to the impact of an already constrained supply chain that has been further reinforced by market shocks.

According to S&P Global Platts data, European low-density polymer prices rose to €1,760/mt, up 81% from Nov. 9, when the LDPE FD NWE spot was valued at €900/mt. A similar pattern of price increases applies to other polymers, such as polypropylene, polystyrene, and ABS.

Pressure from rising raw material costs, particularly the €501 spike in the price of styrene in March, led to further increases in the European ABS spot market. FD NWE polymer spot prices were estimated at 2,575 euros/mt on March 3, up 235 euros on the week, the highest level since Platts began pricing ABS.

 

Plastics: price increases and supply difficulties

Not only the pandemic emergency

As if the pandemic wasn’t enough, in February 2021, Texas experienced severe disruptions from a snow and ice storm that caused forced shutdowns for businesses, leaving them without power and suffering major slowdowns on production.

The Gulf Coast area is one of the most important global hubs of the plastics industry, producing about 20% of the world’s ethylene and, unfortunately, the severe disruption not only affected American production but also European production.

In 2020, Asia was the first continent to restart after the lockdown, about 4 months before the others; therefore, it was less affected by rising prices and lack of raw materials, having been supplied earlier than the others.

Rising plastic prices

The difficulties continued for months: while companies in other sectors timidly began to recover, thus leading to a strong increase in the demand for plastic products and packaging, in the market it was increasingly difficult to find raw materials with the consequent “stratospheric” increase in prices.

The latest news is that on 29 August Hurricane Ida struck Louisiana. If before this event the prices of polyethylene, polypropylene, and PVC were already very high, now they have undoubtedly prohibitive prices.

It is estimated that about 39% of the entire US PVC capacity, 18% of PE, and 9% of PP capacity have been shut down.

As in February, the most serious inconvenience has been caused by the complete lack of electricity, and in some areas of Louisiana the blackout lasted up to 48 hours. Full activity for these companies is still far away and this will cause not inconsiderable delays on supplies.

Another important point is the economic viability of some plastic processors, already struggling with a change in demand patterns since the beginning of the shutdown.

The observed price increases made it difficult for some processors to negotiate, as record prices meant that credit facilities were limited due to the risk involved in potential polymer price volatility.

This meant that the processor would likely have to reduce or stop production altogether.

How long will the crisis last?

How long will this last is the question everyone is asking, however, is when polymer prices will begin to decline. The supply shortage may take some time to ease.

While the answer from some is that it will depend on when we finally see U.S. export flows resumed that was halted before the pandemic, others have said that this is more complex. Estimates now range from summer to the end of the year.