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Global shipping turmoil deepens, adding to the upheaval in plastic resins

by Manolya Tufan - mtufan@chemorbis.com
by Esra Ersöz - eersoz@chemorbis.com
  • 15/02/2021 (08:32)
Polymer markets shoot up in a tumultuous climate, where the global shipping crisis has contributed to the soaring prices in major regions. Global supply chains, both upstream and downstream in the plastic resin industry, were disrupted amid production snarls, a shortage of containers and changing demand patterns triggered by the pandemic.

Plastics manufacturers from different parts of the world lamented, “It is a great challenge to find space on vessels. You need to compete for limited booking space. We are mulling over reducing production rates as a result of difficulties in finding containers to export our finished products.”

What spoiled the freight balance?

Virus-hit demand at the height of the pandemic forced shipping lines to reduce the number of deep-sea vessels to stabilize costs in response to slowing global trading.

After virus-related lockdowns were lifted towards the end of Q2, economic activities started to recover amid a resurgent demand and stimulus packages. Meanwhile, exports from China were resumed at an earlier stage, with the country being the first to bring the pandemic under control. The final quarter of 2020 was unexpectedly strong in terms of demand due to robust Christmas buying and replenishment activities.

Shipping costs skyrocket

Container freight prices surged unprecedentedly, threefold or fourfold depending on the destination, which also translated into higher prices across global polymer markets.

“Given the current exceptional situation where demand surge has led to bottlenecks in supply chains and equipment shortage, the first quarter of 2021 is expected to be stronger than the fourth quarter of 2020,” Maersk, the world’s largest container shipping firm, explained in a report.

Players were expecting this shipping turmoil to normalize in the latter part of Q1. However, it seems more time is needed for these expectations to materialize amidst surging demand on one hand and ongoing supply chain bottlenecks and equipment shortages on the other.

Is this turmoil here to stay more?

With capacity fully deployed and new containers coming into service, industry observers expect those volatile spot rates to stabilize and bottlenecks to ease by the end of the first half, according to Bloomberg.

CNBC also reported shipping companies were deciding to turn around empty containers and ship it back to Asia, rather than wait an extra week or two to fill it up with exports from the US given this cripping shortage of containers.

Industry players also argue that clients have been paying premium for the past few months to book space and equipment. Still, on-time delivery is not guaranteed given the heavy congestion at ports in the US and Europe.

A participant commented, “We hear that a great number of containers sit at the US ports of Long Beach, Los Angeles and New York and they wait there for days. Ships cannot be unloaded swiftly as cargo handling speed has reduced a lot due to the lack of manpower in the midst of rising infection rates.”

Things are not any better amid China’s absence

Participants were expecting to see a relief in container shortage once China leaves for the Chinese New Year holidays and the influx of exports from the country subsides. However, these projections fizzled out as there has been a negligible ease in the freight rates up till now.

According to media reports, some manufacturing plants may continue to work during Chinese New Year holidays due to the travel ban to curb the spread of the virus. Companies are expected to be back in harness earlier than usual to clear their backlog orders, which also shows that traditional patterns are changed by the pandemic. Uninterrupted production of final products will add to the piling stocks in the warehouses that are meant to be shipped.

Many polymers hit multi-year highs

The uptrend in major global markets gained steam starting from the Q4 of 2020 and they also made a strong start to 2021. This was because there has been unexpectedly good demand coupled with production issues in many polymers. On top of already tight markets, the container shortages exacerbated the supply situation.

Soaring freight rates prevented exporters from taking advantage of the arbitrage window opened from Asia to the rest of the world. Import supplies dried up, which pushed prices for most polymers strongly up in America, Europe, the Middle East and Africa.

Moreover, producers prioritized supplying their own local markets, not to mention their inability to rebuild inventories due to robust buying appetite amid backlog orders and unexpected production glitches. Countries that are heavily reliant on imports have borne the brunt of the global shipping turmoil.

Import PVC hit all-time highs across the globe. ABS prices widely neared record-highs in major markets while PS prices hit multi-year highs. Import PET bottle prices in Europe and the Mediterranean markets including Turkey and Egypt soared by around 40-45% since November due to the lack of feedstock and PET imports.

When it comes to polyolefins, which are the world’s largest polymers in terms of consumption, PP and PE markets in Turkey and Europe saw hefty increases due to the lack of Asian and Middle Eastern suppliers and more attractive netbacks in America. European spot PP and PE markets soared by around 35-40% from late December.

In Turkey, import PPH prices have seen their more than 6-year highs recently, rising by 17-20% just in a week. LDPE film has also neared 7-year highs while LLDPE and HDPE prices gained more than 40% since November, hitting their highest of more than 5 years.

China’s polymer prices: the least affected by the astronomic hikes in freights

Meanwhile, polymer markets in China have also been edging higher; however, the momentum of the rising trend lags far behind the rest of the world. The increases are relatively minimal with the exception of LDPE and ABS, which respectively hit 5-year highs and all-time highs.

China’s robust export performance as well as rising domestic capacities particularly in PP, HDPE, LLDPE has helped keep price hikes relatively in check, as carriers have been eager to send empty containers back to China to be filled with more profitable goods.
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