The plastics supply chain is in the middle of a massive, global change. The price of plastics is currently shooting through the roof, and this is leaving manufacturers across market sectors with increased raw material costs.
When raw material costs increase, the people who typically feel it are the consumers. Unfortunately, the wallet of the end customer typically bears the brunt of the impact in most types of cost increases. This price jump will be no different.
Since plastics are utilized across dozens of industries, the implications of an increase in costs for commonly used plastics is forcing executives at manufacturing companies to rethink their long term strategy.
For decades, plastics have been a strong, cheap, and lightweight alternative to other raw materials like metal. This is why many of the best selling products on the planet use hardened plastic as a reliable input that keeps the cost of goods sold (COGS) low.
But, there are big shifts happening in the world right now, and many of these changes are creating negative financial implications for the plastics supply chain.
As we look at some of the big global shifts taking place, we can’t help but acknowledge a transition from the Trump administration to the Biden administration.
This one change is quickly turning the plastics industry on its head.
On the first day of his presidency, Joe Biden shut down the Keystone pipeline. This was one of the main oil pipelines that supplied the United States with petroleum resources. Since plastic is a petroleum-based material, the reduction in oil supply creates a reduction in the plastics supply.
This is compounded on top of a worldwide reduction in oil demand because of COVID. The increase of mask mandates has created a reduction in travel. Since the mobility sector is the largest consumer of petroleum, fewer people traveling from place to place means less oil consumption. This has caused oil refineries to reduce production levels to make sure there’s not an oversupply of petroleum. The worldwide reduction in oil consumption further speaks to the reduction of the availability of plastics to manufacturers.
Coinciding with the reduction of oil supply is an increase in plastics demand. People are eating take out food now more than ever. The shipping and packaging industries are booming. There are more plastics being consumed today than at any point in history.
Not only are people consuming more plastics, but they’re also demanding that those plastics have bio-based materials in them. There is a worldwide increase in the demand for bio-based plastics, and that trend line isn’t changing anytime soon. Unfortunately, consumers across the world are stuck using petroleum-based plastics because they don’t have an alternative.
But, that’s about to change.
When supply goes down and demand goes up price increases. This is basic economics. Unfortunately, these economics are about to crush an industry that has relied upon low prices for decades.
The plastics industry is looking for a viable alternative. Oil supplies aren’t going to jump for the foreseeable future, meaning that plastics supplies are going to remain low until further notice.
Manufacturing executives across plastics, packaging, automotive, aerospace, marine, medical, and other market sectors are actively searching for alternatives as the price of virgin plastic doubles, triples, and quadruples. This is dangerous territory for companies that are already working on thin margins.
The traditional way that manufacturers have stretched their supply of virgin plastics is by compounding it with recycled plastics. The problem with this solution is that recycled plastics have their own pitfalls:
These two facts mean that recycled plastics can only stretch the virgin plastic supply chain so far. Although there will always be a place for recycled plastics, their increased cost and decreased strength make them difficult to compound at high load rates.
As manufacturing companies look at other long-term alternatives, they’re left with the most obvious, sustainable solution: bio-based materials.
Agricultural products have the best chance of extending the current inventory of both virgin and recycled plastic. With bio-based additives, plastics inventories can double, triple, or quadruple.
This is all possible because materials like industrial hemp fibers and hurds are stronger, lighter, cheaper, and more sustainable than the materials they replace.
Hemp has such a low bulk density (or high volume) that it makes other plastics additives look heavy. Basically, a little bit goes a long way.
This means that hemp-based additives have the opportunity to extend the current plastics supply by orders of magnitude. The opportunity for plastics compounders and the manufacturers they work with to transition toward bio-based materials has never been more advantageous.
With the price of plastics quickly rising, agriculture supply chains are going to become increasingly relevant for industrial use cases like plastics compounding. The question now is: will leaders across manufacturing listen to their customers and seize the opportunity to reduce their cost of goods and extend their plastics supply?
There has never been a better time to start working with industrial hemp as an additive to plastics. A few years from now, many manufacturers will wonder why they didn’t start today.
Join us as we build a world out of hemp.
— Heartland Team