By Stephanie Yang, CNN
Taipei, Taiwan (CNN) — One month into the war in Iran, a growing shortage of crude oil is threatening to morph into something worse: a shortage of nearly everything.
The conflict in the Middle East has crimped oil and natural gas flows through the Strait of Hormuz, reducing global supply by about one-fifth. The disruption has not only sent fuel prices soaring, but has squeezed supplies of petrochemicals needed to make everyday items like shoes, clothing and plastic bags.
That strain is now spreading into every corner of the consumer market as prices rise for materials like plastic, rubber and polyester. The impact is so far most evident in Asia, which accounts for more than half of the world’s manufacturing and is heavily reliant on imports for oil and other commodities.
In South Korea, where people have been panic-buying trash bags, the government has encouraged event organizers to minimize use of disposable items. Taiwan has started a hotline for manufacturers that have run out of plastic, while its rice farmers told local media they may hike prices because they can’t get vacuum-sealed bags.
In Japan, the oil crisis has sparked fears that patients with chronic kidney failure won’t be able to get treatment due to a lack of plastic medical tubes used in hemodialysis. Malaysian glove manufacturers say a dearth of a petroleum byproduct needed to make rubber latex is threatening global supplies of medical gloves.
“This spills into everything very, very quickly: beer, noodles, chips, toys, cosmetics,” said Dan Martin, co-head of business intelligence at Dezan Shira & Associates, an advisory firm that helps international businesses expand in Asia.
That’s because plastic caps, crates, snack bags and containers are becoming more difficult to procure. Petroleum derivatives are also needed to make adhesives for footwear and furniture, industrial lubricants for machinery and solvents for paints and cleaning processes, Martin added.
“It’s very fast transmission from oil and shipping disruption into petrochemicals and consumer goods,” he said.
The upheaval across commodities and manufacturing is putting upward pressure on global inflation and weighing on economic growth. Manufacturers are paying more for energy and raw materials, which is hitting profit margins and starting to push up prices for consumers. Rising fuel costs are upending travel and logistics, while tight supplies of other materials from the Middle East, such as fertilizer and helium, could lead to more expensive food and electronics.
“Such complex spillovers confront us at a time when many economies have limited room to absorb shocks,” the International Monetary Fund wrote in a blog post Monday. “Although the war could shape the global economy in different ways, all roads lead to higher prices and slower growth.”
No recourse
Countries have begun releasing a historic amount of oil from emergency stockpiles to offset the war’s impact. But much of the broadening supply crunch stems from a shortage of naphtha, a petroleum by-product and critical feedstock for synthetic materials, of which producers have far fewer reserves and no substitute.
Some petrochemical companies in Asia, which gets more than half its naphtha from the Middle East, have cut output or declared force majeure in recent weeks due to limited raw materials. Force majeure is a legal term that refers to unforeseeable circumstances preventing a company from fulfilling a contract.
South Korea has taken advantage of a suspension of US sanctions on certain Russian oil and petroleum products to buy its first load of naphtha from Moscow since the start of the Ukraine war. Seoul has also imposed an export ban on naphtha to preserve domestic supply.
Martin at Dezan Shira & Associates, who works with manufacturers in Vietnam, said the scarcity of naphtha is leading to higher input costs for clients, particularly those that make products with strict specifications, such as semiconductors, automotive parts and medical or food-grade packaging.
“There’s not really a whole lot of recourse, except to go and cut assembly and use less power,” he said. “All companies are competing against each other. Everyone’s in the same exact position.”
As producers rush to secure materials, the costs of plastic and products that contain it are climbing. According to ICIS, a commodities market intelligence platform, prices for plastic resins in Asia have risen as much as 59% to record highs since late February, when the United States and Israel first launched airstrikes against Iran.
One of Thailand’s biggest plastic packaging wholesalers said it has increased prices by 10% for the clear cellophane bags widely used by restaurants, food stalls and for take-out deliveries. Indian media has reported that bottled water is getting more expensive, with prices for plastic bottle caps quadrupling since the war started. And an official at Nongshim, South Korea’s largest instant noodle manufacturer, said the company that supplies its plastic packaging currently has about one month’s worth of supply left.
Shariene Goh, a senior petrochemical analyst at ICIS, said consumer goods that rely heavily on plastic packaging, like cosmetics, may be even more prone to shortages than some products with plastic in them.
“The end-products segment might leverage their inventory levels, which might deplete over time,” she said. “I would think that they might start to run out pretty soon.”
Moving westward
As the first region to feel the impact of the fuel crisis, Asia’s new supply issues bode poorly for the rest of the world, if oil and other resources can’t be produced in or shipped from the Middle East.
Aside from producing about 17% of the world’s naphtha and 30% of its plastic resin, the Middle East also supplies 45% of its sulphur, used to make fertilizer, 33% of its helium, used in semiconductors, healthcare and aerospace, and 22% of its urea and ammonia, used as nutrients for crops, according to Morgan Stanley.
US farmers are already paying more for fertilizer as the price for imported urea has risen by about one-third since the war began. In India, condom manufacturers are reporting disruptions from shortages in not only packaging materials and silicon oil, which requires petrochemical feedstocks, but also ammonia.
“Much like during COVID, the shock unfolds sequentially rather than simultaneously – a rolling supply disruption moving westward,” J.P. Morgan analysts wrote in a research note last week.
For the past few weeks, Asian countries have been focused on mitigating oil price spikes, with measures such as releasing oil stockpiles, capping fuel prices and cutting work hours to save energy. But according to J.P. Morgan, the supply constraints will become more severe in April, with the last of the crude deliveries sent before the war due to arrive at the beginning of the month.
“The primary challenge has shifted from price to physical scarcity,” the bank’s analysts said. “Asia is no longer in a purely preventive phase.”
Analysts said some producers of consumer goods are delaying materials purchases in the hope that prices will fall if the conflict in the Middle East is resolved.
Qiu Jun, a 36-year-old polyester maker in the eastern Chinese city of Haining, said that, since the effective closure of the Strait of Hormuz, the price of the polyester chips he needs to make his fabric has jumped about 50%, a hike his clients in home textiles, apparel and yarns industries aren’t willing to swallow.
His factory of one dozen employees is still running, but only to fulfill existing client orders. He said he is taking a wait-and-see approach to avoid overpaying for materials to produce unwanted stock.
“I’m anxious,” Qiu said. “The whole industry feels the same. No one knows how the war will play out.”
Others are trying to cut costs by minimizing the amount of plastic used in packaging. In Indonesia, where plastic prices have doubled in the past month, companies are reducing the thickness of packaging material, according to the Indonesian Packaging Federation. Some are even considering using different materials, such as paper, glass, aluminum or recycled plastics, though the organization said each would pose its own challenges in terms of ensuring durability, compliance with safety regulations and the time needed to rebuild production lines and source new supply – which could take six months to one year.
Turning to recycled plastics could also come at a high cost, said Stephen Moore, founder of MLT Analytics, a plastics trade data platform. He said global supply of recycled plastic material is already constrained, and it generally costs five to seven times more than plastic made from fossil fuels.
“If everything returns to normal in the Strait of Hormuz tomorrow, I think it’s still several months at least until there’s a semblance of normalcy for the plastic sector in Asia,” he said.
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