United States plastic suppliers say they are running out of room to absorb high costs of raw materials, raising the prospect of price increases for consumer goods ranging from groceries to cars later this year.
A gauge of wholesale prices of plastic resins and materials jumped by 14 per cent to an almost four-year high last month as the Iran war choked off supplies of key components. For producers like Shawn Gross, whose Corry, Pennsylvania-based company supplies molded parts used in automotive and heating systems, the squeeze is reaching a breaking point.
Breaking Point for Producers
“We are going to need to pursue the price increases with our customers more aggressively,” said Gross, chief executive officer of Viking Plastics. “What the world needs to understand is there is going to be a real impact that is not even yet felt.”
Plastics are everywhere — from snack packaging to refrigerator parts — and about 98 per cent of it is made of fossil fuels. One reason why U.S. consumers haven’t felt the full impact of the war-driven price increases in petrochemicals like polyethylene that are used in everyday products is because costs move slowly through supply chains.
Supply Chain Pressures
Gross, whose suppliers include Dow Inc. and clients include Ford Motor Co., is at the centre of it all. Prices for some polyethylene inputs used by Viking have risen more than 40 per cent this year, he said.
Petrochemical prices have retreated from their highs in recent weeks as demand has softened and oil prices fell below US$100 a barrel, but they remain well above their pre-conflict levels. Much of the damage is already done anyway, according to Gross.
Producers like Dow have already pushed through price hikes to businesses that convert plastic resins into packaging and other products. As those costs are passed from one company to the next, higher prices ultimately make their way to consumers.
Impact Across Industries
“You need to get the dollars and cents out of the customer, and that’s going to trickle into the price of vehicles being higher,” Gross said. “It’s going to be every industry.”
Manufacturers in Asia and Europe were the first to come under strain because they depend largely on naphtha, a crude-derived feedstock that is used to make ethylene and propylene. Shortages of naphtha-derived ink materials even forced a Japanese snack maker to temporarily switch some products to black-and-white packaging.
The U.S. was relatively spared because many petrochemical plants run on ethane from shale gas — a cheaper alternative to naphtha that has been less affected by the Middle East conflict.
But as Asian and European buyers compete for supplies, raw materials are starting to run short in the U.S. too, prompting companies to hoard inventory and putting additional pressures on costs.
Edward Dominion, founder of consumer-goods packaging firm D6 Inc., said raw material costs for his Sulphur Springs, Texas-based company have doubled alongside increases in freight, fuel and transportation. He, too, is already working to pass on the costs to customers.
