Plastic resins – tiny plastic pellets used to make everything from bread bags to milk containers – are subject to a triple blow of high demand, scarce supply, and soaring prices.
The raw material that forms the basis of all things is proving to be the smallest example of how COVID-19 is causing persistent turbulence in the supply chain.
Industry experts say the persistent scarcity of the ubiquitous material is unlikely to be resolved quickly and that resin price hikes are trickling down on consumer goods and adding to inflation.
“The conditions are very, very challenging,” said Bob Masterson, president and CEO of the Chemistry Industry Association of Canada, which represents the plastics industry. “These are prices that the market has never seen before.”
It started at the beginning of the pandemic with a massive surge in the demand for personal protective equipment such as masks, face shields, gloves and gowns – much of which are made from single-use plastics.
The health crisis has also changed consumer buying habits. Grocery stockpiling fueled demand for plastics – even toilet paper is wrapped in plastic – while grocers increased their plastic usage to pack groceries for both in-store and online purchases.
In addition, the shift from food dollars away from restaurants – which buy food in larger bulk packages – to grocery stores has also encouraged the use of plastic packaging on a larger scale.
At home improvement stores, when wood prices were rocketing, some shoppers turned to plastic materials like composite decks or plastic sheds.
“COVID-19 resulted in a significant increase in demand for plastic products across a number of market segments,” Masterson said, noting that plastic production and consumption reached record levels in North America by the end of 2020.
But just as demand peaked, supply fell.
Many plastic resin manufacturers postponed maintenance of their facilities at the start of the pandemic, but Masterson said activities cannot be delayed any further. A number of facilities are currently offline for maintenance, he said.
This comes after a year of storms along the US Gulf Coast that shut down numerous chemical plants for weeks. Hurricane Ida is the latest storm to shake the industry and create a tougher situation in the short term, Masterson said.
At the same time, the construction of new facilities slowed down. For example, Inter Pipeline Ltd. said in May 2020 that the pandemic affected the near-term construction plans for its $ 4 billion Heartland Petrochemical Complex near Edmonton. The facility will convert propane to polypropylene, a material used in a number of products including medical supplies and lightweight automotive parts.
The scarce supply as well as the persistently strong demand have pushed up prices for synthetic resin.
“In the first year of the pandemic, the price of our raw material rose 107 percent,” said Joel Rudolph, Chief Operating Officer of Farnell Packaging Ltd. The Halifax company uses plastic pellets to make flexible packaging, which is primarily used in the food industry.
“We have now seen almost two years of unprecedented climbs. We had some really tough months. “
Still, the cost of plastic food packaging is a small part of the total cost that consumers pay, which means that higher plastic prices alone shouldn’t cause a sticker shock to shoppers, he said.
“In relation to the price of bread, the cost of the plastic bag makes up a very small percentage of the total cost,” said Rudolph.
However, experts say plastic prices are one of several factors driving up material costs and contributing to rising inflation.
According to Statistics Canada, the annual inflation rate rose to 3.7 percent in July, the largest increase since May 2011. The price of so-called durable goods, which include many items made of plastic, rose even faster by five percent.
Indeed, the rising cost of plastic resins was highlighted in Canadian Tire Corp.’s recent call for profits. cited as one of the factors that put “inflationary pressures” on the retailer.
“We would have seen raw material cost pressures in products made with plastic resin, such as storage containers,” said TJ Flood, president of the Canadian tire retail chain, during the company’s conference call with analysts in the second quarter last month.
Toy maker and children’s entertainment company Spin Master Corp. also discussed rising prices for plastic resins during its recent conference call.
“We continue to see rising production costs, primarily from plastic resin, paper and cardboard packaging and, more recently, from electronic chips and especially ocean freight,” said Mark Segal, Spin Master’s executive vice president chief financial office, to analysts in August.
Both Canadian Tire and Spin Master declined to comment on plastic resin prices.
While the situation is unlikely to be resolved anytime soon, Masterson said she should relax as the backlog fills and new facilities go online.
Inter Pipeline said its plastics factory is expected to start producing polypropylene in early 2022.
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Brett Bundale, The Canadian Press
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