As the Iran war closes out its 11th week, the threats to businesses are no longer theoretical — especially for plastics sectors, including packaging. Higher plastic prices and supply struggles are evident, and experts warn the situation is on the verge of worsening without prompt conflict resolution. Regardless of when the war ends, the current impacts on the plastic packaging industry are expected to linger at least for the remainder of the year.
Commodity intelligence service ICIS has reported since March that the Iran war is contributing to a spike in plastic prices, notably for polyethylene and polypropylene. Prior to the war, polymer demand was soft amid a global oversupply of those two resins, and polyolefin producers' margins had been declining for a couple of years. "We were getting close to the bottom of the cycle for those raw materials," meaning producers were at or near the point of rationalizing excess capacity to broaden their margins, said Esteban Sagel, principal and CEO at Chemical and Polymer Market Consultants.
The war quickly resulted in tighter supplies for virgin resins amid production disturbances, along with higher prices globally for both virgin and recycled grades. Andrea Bassetti, Americas team lead for plastics recycling at ICIS, said Asian markets in particular, but also European markets, are much more strongly affected than the United States. "A big part of that is, where does the United States' energy come from? A lot of it comes from ethane and shale gas, and not only crude oil," Bassetti explained.
However, the effects from both global and domestic material supply challenges and cost increases are flowing down to North American converters of both plastic flexible and rigid packaging. This is highlighted in a newly released white paper from Berlin Packaging that raised alarms about the conflict "rewiring global packaging supply chains." Emerald Packaging CEO Kevin Kelly said the flexible packaging company has raised prices about 8% because of input cost increases — its largest ever monthly increase. "Resin prices have already surged 115%. If the conflict intensifies again, we would see cost increases that make the ones we've seen so far look puny," Kelly said.
Amcor CEO Peter Konieczny confirmed the company doesn't have operations in the Middle East, and less than 5% of its resins are sourced from the region. Experts say the timing of renormalization depends both on when the conflict ends and how long it takes for mitigation actions to work through various supply chains. "The most important thing to remember is that the supply chains aren't nimble," said Jonathan Quinn, CEO of EGC Consulting. "There's going to be long-standing ramifications, and it's going to create turbulence in the marketplace for a long time." The Middle East region is the top global polyethylene exporter, accounting for about 40% last year. The Strait of Hormuz has only seen a trickle of ships pass through since the war started February 28.
Key Takeaways:
1. The Iran war is causing marked increases in polyethylene and polypropylene prices along with supply disruptions.
2. Emerald Packaging raised prices by 8% due to input cost increases — the company's largest monthly increase ever.
3. The Middle East is the top global polyethylene exporter, accounting for approximately 40% of exports last year.
4. Only a trickle of ships has passed through the Strait of Hormuz since the war began on February 28.
5. Experts expect prolonged market turbulence due to supply chains lacking agility.
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