Recent Storms and Wildfires Push Packaging Material Prices Higher

While many across our country are still recovering from the personal impact of recent hurricanes and wild fires, many companies are also feeling the effects of these natural disasters as prices on poly bags, films, tapes, pallets, crates, and several other packaging materials have increased significantly over the past month.

Harvey Shuts Down Ethylene Production

In an early September article, Fortune’s David Morris reported that Hurricane Harvey had shut down more than half of U.S. production capacity for ethylene, a vital building block for basic plastics. At the time, the disruption was expected to impact plastic production across the U.S. economy, with full recovery likely to take several months. Another analyst speaking to Bloomberg described the situation as “havoc . . . on an unprecedented scale” for American chemical producers. In the meantime, prices for basic plastic materials began to rise.

Resin Prices Quickly Rise

Resin-based materials quickly reflected the impact of Hurricane Harvey on the Texas oil and plastics industries, as polyethylene prices moved up $.03/lb. in mid- September, and another $.04 in late September or October, depending on the supplier.  According to Mike Burns, RTi’s Vice President of client services for PE, buyers of polyethylene products should “expect firm to higher prices for the remainder of year, with delivery delays and resin allocations…all depending on the speed of recovery.”  At least one supplier of domestic bottle-grade PET proposed a $.07/lb. increase in September due to disruptions of feedstock deliveries, including MEG. Others were expected to take similar action.

Plastic Markets Increase

Producers of poly bags, films, strapping, tapes, and other resin-based materials announced increases ranging from 4 – 10%, depending on location and material.  Some suppliers held off, hoping that markets would stabilize as resin producers recovered capacity, transportation companies resumed service and supply caught up with demand. Unfortunately, prices continue to increase, and industry experts don’t see a reversal until after the first of the year.

Wild Fires Destroy Vital Lumber Resources

In addition to the tremendous personal loss caused by the California wild fires, there was also substantial loss of vital timberlands that supply lumber to make pallets, crating, and other packaging.  While estimates of the total impact on both the packaging and construction industries vary widely, we have already seen increases on pallets and crating in the range of 10 – 15%, with some industry experts forecasting additional increases in the upcoming weeks.  The combination of a shortfall in supply and the huge increase in demand for construction lumber as Californians begin the rebuilding process will undoubtedly impact the prices paid for pallets and other packaging made from lumber.

Time to Take Preventive Measures

Companies with the financial resources might want to consider purchasing vital plastic packaging in larger quantities – to the extent suppliers will allow – to avoid future price increases.  Certainly, large volume users of pallets and crating may want to consider the option of building inventories at current prices in anticipation of upcoming increases.  Given that most of these products are shelf-stable and not subject to deterioration in storage, a little extra inventory might be a good investment.

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