For a month now, with the outbreak of the American-Israeli war against Iran, the entire sector dependent on the chemical industry has been experiencing the full impact of a price shock, with soaring hydrocarbon costs and the near blockade of the Strait of Hormuz, writes Le Monde.
“It was almost immediate. I had never seen anything like it, not even during the Covid-19 pandemic or the crisis related to the war in Ukraine.” On the phone, Guillaume Clément, CEO of the Lyon-based group Blanchon, recalls the events of the past weeks. “The conflict in the Middle East began on February 28, and less than fifteen days later, the first communications from our suppliers declaring force majeure cases arrived. Then the contracts we had signed before the conflict, which included fixed price clauses on the purchase of our raw materials, were all terminated,” he recounts. Since then, hardly a day goes by without one of his suppliers informing him of new price increases.
Between the surge in hydrocarbon prices and the paralysis of the Strait of Hormuz, this French producer of paints, varnishes, and floor enamels—products that essentially rely on petroleum-derived raw materials—has seen its production costs skyrocket. […]
The company from the Rhône-Alpes region is far from being the only one making this observation. For a month, the entire sector dependent on the chemical industry has been suffering the full impact of this price shock. Methanol, acetone, urea, ammonia, polypropylene, polyethylene, sulfur, bromine… the list of products whose costs are skyrocketing keeps growing, to the point that it becomes difficult to provide an exhaustive inventory.
The near blockade of the Strait of Hormuz, destabilizing the global traffic of gas and oil, both essential for the production of chemical raw materials, has indeed triggered a tsunami whose waves are just beginning to reach European shores.
“Ripple Effects”
“The chemical industry is particularly sensitive to gas price increases,” which can represent “up to 80% of the variable cost” for energy-intensive activities such as, among others, ammonia production (used particularly in fertilizers), nylon (a synthetic fiber found in fabrics and numerous industrial components), methionine (an essential amino acid in animal feed), or isopropanol (a solvent used, among other things, in cleaning products), notes France Chimie, the federation representing industry players in France.
The industry is equally vulnerable to oil price fluctuations, from which derive a multitude of key components that feed the manufacturing industry, such as naphtha and ethylene, “the main raw materials of steam cracking plants, upstream of all polymers,” from which plastics in particular derive, continues the trade organization, which warns against “ripple effects.”
Already now, “the situation is dramatic,” says Joseph Tayefeh, secretary general of Plastalliance, an association representing the plastics sector and bringing together over 50,000 companies in Europe. Without mincing words, he believes that, if the war in Iran led by the United States and Israel continues, “the entire European plastic-dependent industry risks being decapitated.”
European plastic raw material producers, already shaken by the 2022 energy crisis, during which some had to temporarily halt production due to lack of profitability, fear they will no longer be able to financially cope with the surge in raw material prices.
Tension on Packaging
Since the beginning of the conflict, prices of these materials, among the most affected by the crisis, have skyrocketed, often recording increases of up to 50%. From polyethylene to polypropylene, through polyvinyl chloride and polyethylene terephthalate, better known by the acronyms PVC and PET, or polystyrene and polycarbonates, none of them escape this inflationary spiral.
Yet, plastics are ubiquitous in the economy. They are found, to varying degrees, in the automotive sector, where they constitute from 14 to 18% of a vehicle’s mass, but also in construction, aerospace, electronics, household appliances, sports and leisure equipment, and especially in packaging. The latter, which includes a variety of products—water and soft drink bottles, meat and fish trays, yogurt pots, shampoo and shower gel bottles, detergent and cleaning product jugs, tarps and silage films used by farmers, medicine blisters—alone represent about 40% of plastic consumption in Europe.
This price shock should not stop at factory gates. Unable to absorb such increases, industry players warn that they will have no choice but to pass them on to their customers, with a high probability that these will then be passed on to consumers, fueling inflation that in France has already risen to 1.7% in March.
“For Now, We Manage to Get By”
At the Eurocoat fair, a biennial event for professionals of paints, inks, adhesives, enamels, and glues held in Paris from March 24 to 26, major chemical distributors present do not yet speak of disruptions but describe an increasingly feverish market. […]
But reserves are not inexhaustible. Regarding plastic processors, “stocks vary, depending on the companies, from two weeks to two months,” estimates Joseph Tayefeh of Plastalliance.
Faced with these uncertainties, everyone is looking for a solution. “Our teams are working. For the moment, we do not identify a significant risk of short-term disruption, that is within three months. However, today there is real concern if the situation were to persist,” notes Olivier Derouard, president of SGH Medical Pharma, a producer of plastic medical devices, particularly dosing pipettes, intended for pharmaceutical laboratories.
(Excerpt from the press review by eprcomunicazione)
