Resin Market Continues To Soar Impacting The Irrigation Industry
The New Year brings hope for change, but so far, the spot resin market in 2021 looks very similar to 2020. Prices continue to soar in significant percentages jumps, and the impact is felt throughout the irrigation industry. In addition to high resin prices, the industry is hit hard with record historically high rates for containerized freight (up over 150% from a year ago), and spot truckload pricing hit an all time high as well. Many irrigation products are injection molded or extruded. In the case of supply tubing or emitterline, 60% -70% of the product’s cost is the resin. Because resin makes up such a large percentage of the cost of irrigation products when resin prices increase rapidly manufactures, dealers, distributors and end users need to react quickly or business will suffer.
How High Is The Price of Resin
In April 2020, the U.S. spot price for resin (LLDPE – Inj) touched $.38/lb. Today the same product is up 95% to $.74/lb. in nine months. COVID’s impact on the economy and the uncertainty ahead for the world economy contributed to the low price last April. This rapid acceleration causes issues for anyone manufacturing plastic products or products packaged in plastic. Manufactures without a process to increase costs as the resin price explodes to the upside will be challenged to operate at a profit.
Why Are Prices So High
It’s hard to keep track of all the major news in 2020, but remember, the U.S. experienced the most active and fifth costliest Atlantic hurricane season on record. Hurricane Hanna made landfall in Texas, and a couple of others impacted the gulf coast and Louisiana. Since the significant manufacturers are in the states with exposure to hurricanes, plant closures are expected. Most years, the increase in pricing is due to supply issues as a result of the closures. However, this year the hurricanes were only part of the story. There we also planned several turnarounds in 2020. A turnaround – which is sometimes referred to as a TAR – is a highly-expensive planned regeneration period in a plant or refinery. During this time, an entire part of the operation is taken out of production while plants are inspected and revamped. In late November early December, there was a surge in orders for resin from Asia, catching most suppliers by surprise. Also, a primary PE plant in Mexico shut down in December. This is important because the ocean freight prices put resin prices from Asia out of reach for Mexico, so they turned to the U.S. for resin, which caused supplies to get even tighter.
If you aren’t feeling bad enough, there is one additional notable issue. When COVID hit, most producers sold off what they had because they, like many others at the time, thought the economy would spiral down quickly.
What We Can Do About It
Unfortunately, we can’t do much about the price of resin. As demand increases and supplies decrease, the price goes up, and when demand decreases and supplies increase, the price goes down. Resin prices change, and we have no way to impact these price changes, but what we do control is how we respond to them. If you are a dealer or distributor of plastic products that have 60% – 70% of the cost tied up in resin’s price, work to negotiate a contract based on agreeable profit to the producer. The agreement should allow regular (think monthly) price adjustments, both up and down, to ensure you have an adequate supply of products. When prices are high, keeping customers happy is primarily a function of getting them good product on time.
The price of resin is just one of many increases we are experiencing as consumers. The freight and container prices are hitting everyone. How much did you spend at the grocery store in February last year compared to this year? I know my bill is up over 30%. Good business managers will evaluate where increases are coming and where shortages may occur and take steps to ensure they can get a consistent product at a fair price.