By David Gecic
The price of chemicals have gone up for a wide variety of raw materials. Custom Designed Chemicals raised prices on several products due to the crisis. For the first time in the ten-year history of our company we increased some pricing.
We have been lucky. Because of key loyal customers we increase our production every year allowing us to purchase larger amounts of raw materials. That savings passes to our customers. We typically have a price decrease on products every few years. This increase should be temporary. It may last for one to three months.
What Happened?
Three or four factors caused price increases. For example: the storms in Texas. the quickly opening up economy, attacks on oil facilities, and some uncertainty about the change in the US government administration. These will all resolve in the next few months therefore chemical prices should stabilize.
Price Increase from Storms In Texas
The scale and the effects of the freezing weather and power failures in Texas in the middle of February, 2021 caused major problems. Oil refineries and other chemical manufacturing installations totally shut down.
All the US propylene oxide plants were off line. 90% of the polypropylene production shut down. This affected not just the plastic industry. Propylene oxide is used to manufacture non-ionic surfactants which are used in most cleaning products in both the industrial and commercial markets. The scarcity of these products caused the prices to spike therefore most industrial detergents will increase in cost.
Ethylene glycol is a cleaning ingredient and an intermediate in products called glycol ethers. This gives the smell to glass cleaners and heavy grease cutting commercial cleaners. It is also used in plasticizing and some paint stripping products.
The problem with the shut downs is these plants take a long time to get back on line. It is not a turn on and off situation. Shutting down a line requires a lot of maintenance work to start them back up. It took weeks to restart them.
Oil In Texas
Oil refineries closing down in Texas removed the raw materials that feed the propylene and ethylene plants. They will come on line quicker. Gas and transportation costs are going to go up. From this time last year (2020), the cost of gasoline to gas stations in most of the country has nearly doubled.
Price Increase from Saudi Arabia Attacks
There were drone attacks on Saudi Arabian oil storage facilities on March 7th, 2021. It did not cause extensive damage but it affected oil prices. This and the improving economic conditions have caused oil prices to increase to $60-70 per barrel. In March of 2020 the price was $31 per barrel
Price Increase from Economic Rebound
Increasing economic demand, whether it is substantial or just wishful thinking, has increased prices as people purchase higher inventories and tool up for a better economy.
Price Increase from Economic Uncertainty
The future of the chemical import market from China and from the US to other countries has increased uncertainty and increased prices. Will there be greater scrutiny and increased regulation under a new presidential administration and a new EPA head?
The new TSCA laws increased chemical safety in the US over the last four years. The EPA probably will not have a wide-ranging increase in chemical regulation. They may however target specific materials and industries. It is possible our company Custom Designed Chemicals may have some major challenges with some of our specialty products because of this targeting. But this uncertainty has added to price increases.
How Far Ranging Is This?
The affect of these price increase will be spotty in the industry. It is affecting several Custom Designed Chemical products. Smaller chemical companies have a slight advantage because a lot of products whose prices are spiking are used at lower concentrations in products. For example, a high-pressure wand phosphate may use 10-20% of propylene and ethylene based detergents.
The effect will be spotty. If a chemical company has to buy inventory of raw materials at this time, they will pay substantially higher prices. We have paid 25% higher prices on some raw materials. However we have enough inventory of other materials to last for months. But because of the delay in required purchasing for these products the effect of the pricing may be felt months down the line.
Most experts think prices and inventories will stabilize in one to three months. We expect it will affect us for about one month.
Force Majeure
A lot of companies have implemented “force majeure”. This basically means that they are reserving raw materials for existing customers. Also companies may limit the amount that customers purchase. They may also not take on new customers saving existing stock for existing customers.
Bottom Line
There is a general slow trend towards chemical price increases. Sodium hydroxide has gone up 7.1% between January and March 2021. Isopropyl alcohol has gone up 35%. Be prepared for potential price increases for many cleaning materials and solvents. Acetone has gone up 41%. Some of these are overdue price increases. But prices are going up.
The current crisis will probably affect products that purchased from larger chemical companies more than smaller companies. There may be shortages of some products that contain heavy levels of detergents.