Disruptions in the global supply chain due to the COVID-19 pandemic, unprecedented winter weather in the southern US, and various other factors have led to a shortage of consumer products and raw material.
Plastic shortage
During the pandemic, consumers stocked up on laptops, gaming consoles, and other electronic devices to transition to work from home and home-school scenarios as well as for entertainment during lockdown. A key element of these consumer products is plastics.
“Constraints on the supplies of their raw materials - polyethylene (PE), polypropylene (PP) and monoethylene (MEG) – are leading to factory shutdowns, sharp price increases, and production delays across a range of industries,” as reported in a late Match article from Harvard Business Review.
These raw materials make plastics for use in a broad range of consumer products, some of which saw an increase in use during the early summer 2020 lockdown, including food packaging, exercise equipment, smartphones, tablets, plastic bags, and medical personal protective equipment. All had an impact on supply. A higher demand for these products aided in the sharp decline in plastic supply.
In addition to the already low inventory, Hurricane Laura—a Category 4 hurricane—made landfall in August 2020 and hit Gulf Coast petrochemical plants in Louisiana and Texas, halting 10-15% of polyethylene and polypropylene production, according to the article.
Winter Storm Uri added to the disruption. Over 100 significant chemicals and derivatives are processed in the petrochemical-heavy Gulf Coast region. During the storm, according to a late March report by Everstream Analytics, “about 80-85% of US production of polyethylene and polypropylene, the two most widely produced plastic polymers in the world, was temporarily offline. The arctic cold also caused the shutdown of about 57% of US production capacity of polyvinyl chloride, the third most widely produced synthetic plastic polymer, with applications in the medical device, electronics, and automotive industries.” Estimates put recovery at 6 months or more.
With plastics inventory so low, many companies declared force majeure. In the same report, Everstream Analytics noted nearly 70 force majeure declarations were issued by petrochemical companies in the US and Mexico in the wake of the storm. By contrast, only 23 force majeures had been declared in the aftermath of Hurricane Harvey after it made landfall south of Houston, the firm said. When a company declares force majeure, they are relieved from fulfilling a contractual obligation due in part for reasons beyond its control, such as war, extreme weather, or labor.
High demand, high prices
Demand is expected to rise as more consumers are vaccinated and out in the marketplaces spending stimulus checks on various consumer goods. A survey conducted by the Institute for Supply Management anticipated “worsening supply-demand imbalances in a variety of areas as the US economy continues to open up.” Disruptions in supply for consumer goods could last a year or longer.
Many end-use products could be affected because of the plastics shortage. Nearly 2 billion pounds of polymer production were reportedly lost during the Winter Storm Uri. Many consumers saw rising gasoline prices due to shut-ins at refineries and production infrastructure but remain unaware of the effect on so many other products. Recall, plastics are used in milk jugs, water bottles, medical equipment, fencing, construction supplies, paint, automotive parts, and on and on. Be prepared to pay more not only for gasoline, but for other oil-related products as the country slowly opens.
Laura Bell-Hammer | Statistics Editor
Laura Bell-Hammer has been the Statistics Editor for the Oil & Gas Journal since 1994. She was the Survey Editor for two years prior to her current position with OGJ. While working with OGJ, she also was a contributing editor for Oil & Gas Financial Journal. Before joining OGJ, she worked for Vintage Petroleum in Tulsa, gaining her oil and gas industry knowledge.