From paints to plastics, a chemical shortage ignites prices

In an economy upended by the pandemic, shortages and price spikes now are cutting into one of the humblest yet most vital links in the global manufacturing supply chain: the plastic pellets that go into a vast range of products, everything from cereal bags to medical devices, automotive interiors to bicycle helmets.

Petrochemicals, which are made from oil, have run into 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.

“This is yet another in a series of interruptions in the supply chain for many industries,” said Christopher Geehern, executive vice president of Associated Industries of Massachusetts. “Prices are going up.”

The price of ethylene — arguably the world’s most important chemical, used in everything from food packaging to antifreeze to polyester — has surged 43%, according to Independent Commodity Intelligence Services.

The root of the problem has become a familiar one in the 18 months since the pandemic ignited a brief but brutal recession: As the economy sank into near-paralysis, petrochemical producers, like manufacturers of all types, slashed production. So they were caught flat-footed when the unexpected happened: The economy swiftly bounced back, and consumers resumed spending with astonishing speed.

Ford Motor Co., hampered by an industrywide shortage of computer chips, now is running short of other parts, too, some of them based on petrochemicals.

“Small businesses, currently facing significant labor shortages, also are struggling to ensure products are on shelves,” said Christopher Carlozzi, state director for the National Federation of Independent Business.

In the federation’s most recent nationwide survey, more than half of small business owners reported moderate to severe supply chain issues, and affirmed the problem was becoming increasingly worse.

“If consumers visit your establishment and don’t find the products they are looking for at affordable prices, they may not come back,” said Jon Hurst, president of the Retailers Association of Massachusetts.

The pandemic also is forcing manufacturers to rethink some of their practices. For decades, companies moved production to China to capitalize on lower labor costs.

“The pandemic has shown that extended supply chains and factories located halfway around the world is not really the most efficient way to create products.” said Jay Zagorski, an economist at Boston University’s Questrom School of Business.

Manufacturers also held down expenses by keeping inventories to a minimum. They bought materials only as needed to fill orders. But as the recession and recovery showed, they did so at great risk.

“The world has a very integrated supply chain,” said Michael Klein, a professor of international economics at Tufts University’s Fletcher School of Law and Diplomacy. “That’s  a good thing, but now we’re seeing some of the vulnerabilities.”

Herald wire services contributed to this report.

from Boston Herald https://ift.tt/3BagrQI