Plastic resin emerges as smallest example of enduring COVID-19 supply chain crisis
Plastic resins – tiny plastic pellets used in everything from bread bags to milk containers – are taking a triple blow: high demand, tight supply and skyrocketing prices.
The raw ingredient that forms the basis of everything plastic is emerging as the smallest example of how COVID-19 is causing lasting supply chain unrest.
Industry experts say the current shortage of the ubiquitous material is unlikely to be resolved soon, and that price increases for plastic resin are spilling over into consumer goods and adding to inflation.
“The conditions are very, very difficult,” said Bob Masterson, President and CEO of the Chemical Industry Association of Canada, which represents the plastics industry. “These are prices the market has never seen.”
It started at the start of the pandemic with a massive increase in demand for personal protective equipment like masks, face shields, gloves and gowns – much of which is single-use plastic.
The health crisis has also changed the purchasing habits of consumers. The storage of groceries has driven demand for plastic – even toilet paper is wrapped in plastic – while grocers have increased their use of plastic to wrap or wrap food for in-store and online purchases.
Additionally, the shift of food dollars from restaurants – which buy food in larger bulk containers – to grocery stores has also pushed the use of plastic packaging more widely.
In home improvement stores, as the price of lumber soared to sky-high, some shoppers turned to plastic materials like composite decks or plastic shelters.
“COVID-19 has resulted in a significant increase in demand for plastic products in a range of market segments,” Masterson said, noting that by the end of 2020, plastic production and consumption were at record levels in North America.
Yet just as demand peaked, supply plunged.
Many plastic resin manufacturers postponed maintenance on their facilities until the start of the pandemic, but Masterson said activity could not be delayed any further. A number of installations are currently offline for maintenance, he said.
It comes after a year of severe weather events along the US Gulf of Mexico coast that have idled many chemical plants for weeks. Hurricane Ida is the most recent storm to rock the industry and create a more difficult situation in the short term, Masterson said.
At the same time, the construction of new facilities has slowed down. For example, Inter Pipeline Ltd. said in May 2020 that the pandemic had affected short-term construction plans for its $ 4 billion Heartland petrochemical complex near Edmonton. The facility will transform propane into polypropylene, a material used in a range of products such as medical supplies and light auto parts.
The tight supply as well as the continued strong demand have pushed up the prices of plastic resin through the roof.
“In the first year of the pandemic, the price of our raw material increased 107%,” says Joel Rudolph, COO of Farnell Packaging Ltd. The company near Halifax uses plastic granules to manufacture flexible packaging mainly used in the food industry.
“We have now seen almost two years of unprecedented increases. We have had some really tough months.
Yet the cost of plastic packaging on food products is only a small part of the overall cost paid by consumers, meaning that higher plastic prices alone shouldn’t cause stickers to shock consumers. buyers, he said.
“On the price of the bread, the cost of the plastic bag is a very small percentage of the overall cost,” Rudolph said.
Still, experts say plastic prices are one of the many factors driving up the cost of materials and contributing to rising inflation.
Statistics Canada said last month that the annual rate of inflation rose to 3.7% in July, the biggest increase since May 2011. The price of so-called durable goods, which includes many plastic items, has increased at an even faster rate of five percent.
Indeed, the rising cost of plastic resins was cited in the recent earnings call from Canadian Tire Corp. as one of the factors causing “inflationary pressure” on the retailer.
“We would have seen commodity cost pressure in products made with plastic resin, like storage containers,” TJ Flood, president of the Canadian Tire retail chain, said at the conference. The company’s second-quarter phone call with analysts last month.
Toy maker and children’s entertainment company Spin Master Corp. also discussed the rise in plastic resin prices on their most recent earnings conference call.
“We continue to see increases in the costs of inputs, mainly plastic resin packaging, paper and cardboard and more recently microchips and especially ocean freight,” Mark Segal, executive vice president and chief analyst, told analysts. CFO of Spin Master in August.
Canadian Tire and Spin Master declined to comment further on the prices of plastic resins.
While the situation is unlikely to be resolved anytime soon, Masterson said it should start to ease as the backlog in demand is closed and new facilities come online.
Inter Pipeline said its plastics plant is expected to start manufacturing polypropylene in early 2022.
This report by The Canadian Press was first published on September 26, 2021.
Brett Bundale, The Canadian Press