Higher costs for plastics used in countless products are becoming the next headache for inflation, as large corporations across industries warn about rising plastics expenses during earnings calls.
Plastics Price Surge and Supply Constraints
A gauge of wholesale prices for plastic resins and materials jumped 14 percent to an almost four-year high last month, driven by the Iran war choking off key component supplies. Some manufacturers are receiving only about 70 percent of the resin they need, while lead times for certain materials have stretched from one to three months.
Shawn Gross, CEO of Viking Plastics in Corry, Pennsylvania, which supplies moulded parts used in automotive and heating systems, says the squeeze is reaching a breaking point. “We are going to need to pursue price increases with our customers more aggressively,” he said. “What the world needs to understand is there is going to be a real impact that is not even yet felt.”
Impact on Consumer Goods
Plastics are ubiquitous—from snack packaging to refrigerator parts—and about 98 percent is made from fossil fuels. U.S. consumers have not yet felt the full impact of war-driven price increases in petrochemicals like polyethylene because costs move slowly through supply chains. However, Gross warns that as costs are passed from one company to the next, higher prices will ultimately reach consumers.
“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.”
Global Manufacturing Strain
Manufacturers in Asia and Europe were the first to come under strain because they depend largely on naphtha, a crude-derived feedstock 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 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.
Industry Reactions
Edward Dominion, founder of consumer-goods packaging firm D6 Inc. in Sulphur Springs, Texas, said raw material costs for his company have doubled alongside increases in freight, fuel, and transportation. He is already working to pass these costs on to customers. Prices for some polyethylene inputs used by Viking Plastics have risen more than 40 percent this year, according to Gross, whose suppliers include Dow Inc. and clients include Ford Motor Co.
Petrochemical prices have retreated from their highs in recent weeks as demand softened and oil prices fell below US$100 a barrel, but they remain well above pre-conflict levels. Much of the damage is already done, according to Gross, who noted that producers like Dow have already pushed through price hikes to businesses that convert plastic resins into packaging and other products.
