Monday, March 8, 2021

Texas storm will put the freeze on the economy


Last month, Winter Storm Uri really put a beating on Texas, crippling its electrical grid and damaging homes and businesses.


Almost a month after the storm first unleashed its deep freeze, Texans are still reeling from the effects.


And so are all Americans.


Well, producers are now.


Everyone else will later.


Despite being 1,200 miles from Houston, my coworkers and I can speak to that. We are on week two of what will be a prolonged crisis at Confer Plastics. We can’t get enough plastics material to make our products.  


Texas’s businesses, like homeowners, were given little to no notice about the widespread shutdown of the grid and the institution of rolling blackouts. Those most impacted were the petrochemical companies. Among them were those that make polyethylene and polypropylene, the most commonly used plastic materials. Those resins appear in everything from packaging of food and cleaning supplies to medical equipment to automotive parts to durable consumer goods. At the peak of the event, 80% of North America’s PE and PP capacity was shut down. At press time, only 20% of that has come back.


In a region where hurricane impacts are common, material producers can plan for that. You know a hurricane is coming. You shut down in advance. The sudden and prolonged electrical outage caught everyone off guard and now they are suffering the consequences. Had ERCOT (the electrical liability commission serving Texas) given advance notice of their strategies, resin plants could have disabled their facilities accordingly. Instead, that flick of the switch happened while everyone was still in full operation.


The damage has been significant. Water and steam, used to crack the carbon molecules, froze inside equipment. The raw materials that were going from gas to solid or had already become so stopped moving. Machines were damaged and pipes were gummed up. It’s so bad that many of the pipes throughout those vast industrial complexes have to be cleaned out manually; no easy undertaking as it seems like there are miles of pipes there. The majority of resin plants won’t be back online until the first week of April.


Supplies that were already stressed because of the demands of the staycation and Covid economies have sunk to unprecedented levels. What will be at least six weeks of lost or crippled production of materials is a significant hit for all goods and packaging manufacturers throughout the country that use those plastics.


The majority of available plastics will be diverted to the essentials – medical supplies and food packaging - while everyone else battles in a free-for-all. I know of a fellow who consults 6 general packaging companies, 5 have gone down. Automotive executives worry of critical supply issues coming to the fore this month.


And, here in North Tonawanda, I’ve already temporarily laid off 40 people and more may follow. Things are so dire that we actually declared force majeure (negating contractual/delivery requirements due to an act of God), something never done before in our 48 years of business, even with 1970s oil embargoes, the Blizzard of ’77, the Great Recession, and Covid.


If my fellow manufacturers and I are reeling from it now, that means retailers and consumers will be in the coming weeks and months. Store shelves could become empty of cleaning supplies with nothing to hold them. The inventory of new cars could scale back dramatically, worsening the production crisis they face now with microchip supplies. Consumer goods, whether its tools, toys, and even the swimming pool products my team makes, will be vacant from store shelves and the warehouse shelves of e-commerce giants. It will be eerily reminiscent of the early days of the Covid crisis when shelves were bare of food, disinfectants, and toilet paper.


On top of that, prices will rise dramatically in the coming months because of the Texas shutdown. Recently, this column addressed the growing threat of inflation. This adds to it. Right now, because of this supply and demand war, our material costs more than three times what it did a year ago. Those prices are expected to stick for the next few months.


What does that mean? Let’s take a heavy plastic part like a kayak for example. That same kayak costs $30 more to make, just in plastics alone, than it did last year. That gets passed on to retailers, who then pass it on to consumers, after their mark-up. All said, your average consumer might be shelling out an extra $40 to just cover the plastics cost of that one item. Now, think of everything you buy made of or stored in plastic.


This shows you how deeply-connected we all are. The failure of ERCOT to properly prepare for and manage an extreme weather event, which then became an extreme social and economic event, was more than a pebble setting off ripples in a puddle (Texas)…it was something akin to a boulder falling into a small pond (the United States). The impact is significant and it is one that will roil the national economy’s waters for months.  


From the 08 March 2021 Greater Niagara Newspapers and Batavia Daily News

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