Supply and supply chain constraints were the topic of the latest edition of the M. Holland Plastics Reflections Series, where our webinar panelists comprised an impressive team of global experts, including Andrew Reynolds, Director at Business Publishing International; Brian Griffin, Director of Global Olefins and Polyolefins Business Services at LyondellBasell; Can Fidan, Vice President of Business Development at MTS Logistics; and Jen Riley-Brady, Vice President of International at M. Holland Company. During their discussion, the group analyzed some of the most pressing challenges for the plastics supply chain as well as highlighted some of the short and long-term impacts.
In an introductory overview, Andrew Reynolds noted that the pandemic and its aftershocks underscored the importance of plastics to human health and the economy. “Plastics are probably the second largest part of the economy in North America,” he explained, noting the estimated value of plastics, including the value of plastics bought and sold by converters and used by the end consumer, is nearly $600 billion.
Reynolds traced the disruptions that have impacted the industry since the start of the pandemic in March 2020, noting that companies scrambled early in the crisis to reduce inventories and preserve cash as they encountered unpredictable demand, with some sectors, such as automotive, shutting down, and demand in others, such as packaging and healthcare, soaring. The industry then was caught off guard when the global economy recovered faster and stronger than expected. The asymmetric nature of the pandemic and economic recovery created imbalances in the global supply chain, including container and labor shortages, which only exacerbated efforts to rebuild inventories and led to historic cost and price inflation. Mother Nature then delivered a further blow to the North American plastics industry when Winter Storm Uri shut down much of the Gulf Coast supply and led to force majeure declarations affecting a swath of resin suppliers and products.
Today, the plastics industry is still playing catch up, trying to meet current demand while also dealing with the same labor and material shortages plaguing virtually every other industry. Reynolds predicted an uneven recovery for the industry without a full recovery before the end of 2022.
Despite all the challenges of the pandemic, Reynolds maintains an optimistic outlook for the North American plastics industry. “Polymers are growing more than 5% to 7%, while construction-focused products are up 15% to 20% annually,” he explained. He’s encouraged by expected government investment in infrastructure, the recovery and transformation of transportation industries toward e-vehicles, and ongoing vibrancy in packaging and medical applications.
With the Delta variant of the coronavirus surging globally, the panelists expect ongoing disruption. Can Fidan foresees continuing supply and demand imbalances for global shipping. “We expect that this current strong market will continue until mid-next year. However, in regions with spikes in COVID infections, the sea trade market won’t go back to where it was for many years to come,” he noted. While he foresees global shipping eventually stabilizing, he expects the trucking market in North America to remain constrained for many years due to a severe shortage of drivers. Reynolds also emphasized how geopolitical issues, especially trade tensions between the U.S. and China, have added to the complexity of global supply chain issues.
Brian Griffin explained how LyondellBasell experienced a rapid decline in demand and pricing at the onset of the pandemic, as companies retrenched in expectation of a potentially long downturn. “I saw companies delay turnarounds, completely cancel projects or delay them indefinitely,” Griffin said. But this hesitancy didn’t last long as locked-in consumers, flush with stimulus money, began spending again. “We’re continuing to see how essential plastics are to a post-COVID-19 environment: working from home, deliveries, etc. All of these things grew the polymer market last year despite GDP being down,” Griffin explained. He expects supply to remain tight as producers resume delayed maintenance shutdowns of plants, with the potential of more significant disruption in the event of hurricanes or other natural disasters. (Note: Hurricane Ida struck the U.S. Gulf Coast the week following the webinar.)
M. Holland’s Jen Riley-Brady explained how the pandemic and recent natural disasters exposed tangled relationships between petrochemical companies and drove pricing to unforeseen levels, pushing credit lines to their limits. North American production was hit especially hard following Winter Storm Uri, contributing to supply shortages of both commodities and engineered thermoplastics. The supply shortages severely reduced availability for export, while container shortages and high shipping costs made importing resin uneconomical to alleviate the supply/demand imbalance. “People became very creative with the polymers they were using, but, unfortunately, it continues to be completely tight,” Riley-Brady said. She expects tight supply and elevated prices for many resins to continue into 2022.
Panelists reflected on the lessons of the pandemic and some things businesses can do to help mitigate the continuing disruptions.
Reynolds explained how the pandemic has revealed vulnerabilities of lean, cost-optimized supply chains and highlighted the importance of supply chain resiliency. He noted that many companies are trying to shrink and regionalize their supply chains, build redundancy among suppliers, and increase inventories to mitigate future risks.
Fidan highlighted the importance of better forecasting and transparency throughout the supply chain. “In today’s environment, the most important aspect is more open communication and better forecasting throughout the supply chain,” he said.
At LyondellBasell, Griffin explained how his team is working to minimize supply chain risk by increasing efficiency and accountability. “Within North America, we know logistics resources are super tight, so we want to use them in the most efficient way we can — emptying and returning rail cars and ensuring trucks can offload and get more in one day,” Griffin said.
Riley-Brady emphasized the importance of maintaining nimble operations and strategic relationships. She explained how having a backup plan and secondary materials on deck are critical to proactively reducing operational disruptions. “Building and maintaining relationships served companies well and maintained some stability in comparison to companies who bounced around,” Riley-Brady said.