Plastics Shortage – What’s the Impact for Supply Chains?

THE RESILIENT ENTERPRISE | THE RISKMETHODS BLOG

1. Understanding the plastics market

Plastic production begins with refining oil, when certain petrochemicals are separated out. In one processing method, a key chemical, naphtha, is put under enormous heat to break up its hydrocarbon compounds. The resulting monomers are then chemically arranged to produce long repeating chains.

The polymer chains are combined with various materials to make plastic resins with different characteristics. Two of the most widely produced types of thermoplastic polymer resins are polyethylene and polypropylene.

Polyethylene (PE) is used for electrical insulation, medical equipment, packaging, films, tubes, or laminates, among other products.

Polypropylene (PP) is commonly used in plastic injection molding, needed to produce durable plastic parts such as automobile bumpers, for example.

2. What's the current state of the plastics shortage?

At mid-year, supplies of raw materials, plastic resins such as PE & PP and compounded plastics remain very tight. Prices that hit historic highs in March seem to be consolidating at high levels. Makers of plastic products have watched their lead times grow and costs increase. Supply and demand imbalances continue to cause delays in delivery or even production stoppages.

The lack of raw materials supply has hit resin markets hard, not only in the United States, home to the world’s largest petrochemical processing plants. By April, shortages of polymer resin had affected 90% of European converters, according to the European Plastics Converters (EuPC) trade group. This has hurt some 50,000 small and medium-size companies that make materials and products for construction, packaging, electronics, and the automotive industries.

Yet short-term relief of the plastics resin shortage, along with record resin prices, is nowhere in sight. Following weather-related disruption in Texas this past winter, many polymer producers remain under force majeure, with output strictly allocated. Prices for oil are rising for summer’s travel season. And the hurricane season is just beginning.

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3. What is causing the plastics shortage?

Similar to the semiconductor shortage, the plastics shortage 2021 did not happen overnight. Rather, it was a series of seemingly unrelated events. And like the nine poisonous heads of Hydra, threats are coming at you from all directions. Sometimes all at once. Even if you manage to hack off one heads, another grows in its place. Contributors to the plastics shortage include:

Pandemic conditions – Early in the COVID-19 pandemic, plummeting oil prices and low demand led oil companies to cut production. During lockdowns, demand for plastic products and products containing plastic increased sharply. Yet quarantines restricted productivity at chemical and processing plants, so many polymer suppliers could not fulfill orders.

Maintenance delays – Polymer production facilities must be regularly shut down for extensive maintenance. Yet COVID-19 restrictions delayed most scheduled 2020 shutdowns, which must now be performed. And turnaround takes longer with pandemic health and safety restrictions, when fewer workers are on site.

A perfect storm – In mid-2020, extreme weather during the hurricane season in the US disrupted hydrocarbon extraction and processing. Then this past February, the severe winter storm Uri caused power outages and freeze damage to equipment and pipes in the US Gulf Coast, which crippled resin production.

Plant disasters – Major fire damage and leaks in major chemical processing plants occurred in locations including Louisiana, Germany, the United Kingdom, and South Korea.

4. How can The riskmethods Solution help you deal with the plastics shortage?

So how did Hercules ultimately defeat the multi-headed monster? He used a creative approach. Although massively strong, he worked in tandem with his nephew, Iolaus, to solve this problem.

Each time Hercules cut off one of the serpent’s heads, Iolaus burned the neck with a torch. In this way, they closed the wounds before new heads could grow. By being risk aware, reacting fast, being proactive, and with a reliable partner at his side, Hercules could outpace Hydra’s multiple threats and emerge victorious. Lesson learned: Working smarter is a better option for slaying a dragon.

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The riskmethods SolutionTM can be your secret weapon to get ahead of today’s plastics shortage risk. By connecting the dots on seemingly unrelated events, you are better prepared for adverse risk events. Through the power of artificial intelligence, and with our team’s support, we can help you react faster to the risks in your supply chain.

Here’s how:

  • Supply chain visibility We enable global visibility by mapping your supply chains from customers to sub-tier. You can be aware of market trends and emerging threats anywhere in the world.
  • Real-time information and early warning signs We provide up-to-the-minute warnings for any of your plastics-related sites, suppliers, customers, locations, or countries. These include oil refineries, chemical companies, and leading plastics manufacturers.

The warnings we sent include alerts of extreme weather events and power outages affecting plastics and chemicals producers, among others. Our real-time monitoring alerted customers to disaster at business partner sites, industrial disputes, and force majeure. We also sent notices of site relocation or closure, and cuts or halts in resin production, including maintenance-related stoppage. Financial warnings included revenue and growth outlook. Beginning to recognize any patterns?

  • Impact analysis Understand how critical threats are to your organization. For example, when you uncover single-source situations in advance, you have more time to develop alternatives.
  • Proactive risk mitigation tools With the dashboard and advanced analytic tools provided by The riskmethods Solution, you can streamline your activities. When you have action plans in place, everybody already knows what to do should crisis strike.

Thanks to this increased risk awareness, you can be proactive about shortages and disruptions. You can react faster than your competitors to secure remaining material and avoid rising market prices.

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5. Building resilient supply chains is your best prevention

It’s the nature of the beast that manufacturers are vulnerable to shortages and supply chain disruptions. So, like with the challenge of the Hydra, you need to understand where and when the next threat is about to strike. But how do you do this, and how do you do it quickly?

The first step is to map your tier-1 suppliers and logistics hubs. And to build more resilient supply chains, we recommend that you delve into your sub-tiers. By being risk aware, reacting faster, and being proactive, you can stay ahead of risk.

With a reliable partner at his side, Hercules could outpace Hydra’s multiple threats and emerge victorious. Similarly, by enabling you with advanced risk management tools, riskmethods will work in tandem with you to defeat this modern-day monster.

Why Managing Risk is Essential to Supply Chain Resilience

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