"Going To Get Ugly" - Global Plastic Shortage Triggered By Texas Deep Freeze

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by Tyler Durden
Tuesday, Mar 23, 2021 - 05:45 AM

The cold snap that shut down oil fields and refineries across Texas last month has severely impacted several petrochemical plants caused a global shortage of plastics, according to WSJ. Plastics produced on the Gulf Coast are essential for carmaking, medical devices, homebuilding, and consumables. 

Prices for polyethylene, polypropylene, and other plastics used to make automobiles, computers, and pipes have reached their highest prices in years due to the shortages produced by the shuttering of petrochemical plants across Texas and other Gulf Coast states due to cold weather in February. 

On top of a shortage of almost everything and soaring prices, as we explained days ago, wide-scale supply chain pains are expected throughout 2021. 

WSJ reports Honda Motor Co. will halt some of its U.S. and Canadian automobile factories this week due to supply chain issues from the winter storm last month. 

Toyota Motor Corp. expects the shortage of petrochemicals to hurt production at its car plants. Paint maker PPG Industries Inc. said a number of its suppliers had been affected by the plastic shortage. Storage and shelving retailer, Container Store Group Inc., warned that the plastic shortage could impact profit margins. 

John Schiegg, vice president of supply-chain services for David Weekley Homes, a Houston-based homebuilder, said a shortage of everything from siding to adhesives to insulation is quickly materializing - this could easily delay homebuilding projects, or in the meantime, result in higher costs. 

It's not just plastic in short supply; shortages have also been reported in lumber, steel, and semiconductors

Several PVC piping manufacturers told Schiegg that they couldn't fulfill his order because of the supply chain disruptions due to the crippling of petrochemical plants. 

"We had no idea how much came from the Gulf Coast area," Schiegg said. "I tell people it's going to get ugly. There's going to be a big fight for materials."

It's not just home building that's being affected by the shortage. Hospitals are experiencing a lack of plastic medical equipment. 

Kim Anders, a supply-chain executive at the hospital buying group Premier Inc., said the virus pandemic had caused a significant increase in demand for the use of needles but, at the moment, medical and disposable sharps containers (made out of plastic) are hard to obtain. 

Prices for low-density polyethylene film in Houston, Texas, have nearly doubled since the beginning of the pandemic, reaching a decade high this month. LDPE plastic film is used for dry cleaner bags, bread bags, paper towel overwrap, and shipping sacks.

Prices for linear low-density polyethylene in Houston, Texas, have reached highs not seen since 2015. LLDPE is used for plastic wrap, stretch wrap, pouches, toys, covers, lids, pipes, buckets, containers, cables, geomembranes, and flexible tubing.

While the plastic shortage has sent specific plastic prices to decade highs, demand appears to be an overwhelming supply at the moment. Even before last month's deep freeze, the Gulf Coast's chemical industry was hurting from a super active hurricane season. On top of this all, the Federal Reserve is setting off a historical experiment to run the economy extremely hot via low rates and massive fiscal stimulus. 

"We could also see upward pressure on prices if spending rebounds quickly as the economy continues to reopen, particularly if supply bottlenecks limit how quickly production can respond in the near-term," Fed Chairman Jerome Powell said last week. "However, these one-time increases in prices are likely to have only transient effects on inflation."

Supply bottlenecks of plastics, lumbersteelchips are already dragging on specific industrial production. We're only finding out how vulnerable global supply chains are, and the other is how crucial plastic is to the economy. 

Respondents to the most recent mfg ISM revealed just how bad supply chain disruptions truly is: 

  • "Things are now out of control. Everything is a mess, and we are seeing wide-scale shortages." (Electrical Equipment, Appliances & Components)
  • "Supply chains are depleted; inventories up and down the supply chain are empty. Lead times increasing, prices increasing, [and] demand increasing. Deep freeze in the Gulf Coast expected to extend duration of shortages." (Chemical Products)

Goldman Sachs told clients last week that supply chain woes might not be resolved until 2022.