The Impact of Inflation on Plastic
As a direct consequence of the global geopolitical situation especially with Russia, food products, crude petroleum, chemicals, plastics, natural gas, base metals, mineral oils, and polymer price is steadily rising. The brief period of recovery, in late 2021 following a decline in positivity rates saw the average polymer supplier successfully (to a large extent) pass on these added costs to their buyers. This dampening while increasing demand has also created a shortage in naphtha and ethylene supplies.
The input costs have, in a nutshell, gone up across the board ranging from 20-44% for plastic tubing, acrylic sheets, plastic bags, polypropylene films, PVC accessories, etc.
Causes
One of crude oil’s primary derivatives, naphtha is used as the primary petrochemical in the production of plastics. India is expected to import 0.22 Tonne Million by Q3 2022. The biggest polymer supplier by far is Reliance Industries, and the rest ~20% market is shared by four government companies Indian Oil Corporation Ltd, Haldia Petrochemicals, Bharat Petroleum Corporation Ltd, and the Gas Authority of India Ltd. Fuelled by the construction industry and use of PVC, this exceptionally high demand is third in terms of global consumption.
A major rise is also being driven by the current demand in the U.S. owing to last year’s weather calamities and freezes. The massive shortage, with over 60% of the PVC being defunct as of Q2 2022, has caused prices to rise monumentally. Not just limited to PVC, each polymer supplier is facing increased demands for polyethylene, often used in packaging consumer goods at levels more than double the 2019-2020 average. The prices are currently the highest since the 2008 inflation.
Effects
What remains to be seen, is the effect of increased spending, as economies try to rebound in the short term. Supply bottlenecks have not yet been resolved, quoting Bob Patel, CEO, Lyondell Basell Industries, “the Freeze alone will reduce U.S. Production of polyethylene by about 12%…” Not as widely discussed as other raw materials, rises in polymer price are starting to mark their presence in the real economy. The strong demand for building materials is also driven by the consumers spending more and more time at home. With remote working solutions and increasing internet infrastructure in the country, there is no foreseeable drop in the demand.
What Now?
Rising inflation and the limited pricing power of most MSME companies have further taken their toll when it comes to squeezing profit margins. OfBusiness offers various options to facilitate credit lines to combat rising polymer price. This, coupled with the transparent and fair platform ensures the best possible polymer supplier in the least amount of delivery time. Using a centralized digital platform also ensures you get the widest range of polymer suppliers for your project, at the press of a button and with competitive polymer prices.
OfBusiness also maintains inventory in real-time to cater to both personal orders or purchases in bulk. Our credit options are second to none, and understand the nuances of global volatility when it comes to formulating the best routes ahead for each project.
