Supply chain issues – from availability of raw materials to increased prices – have dogged the polyurethane industry in recent months. Sarah Houlton took the temperature at UTECH Europe in November.
A perfect storm has hit the polyurethane industry in recent months. A combination of shortages and force majeures have conspired to make the prices of various critical raw materials spiral and, in some cases, they have become difficult to source.
Systems houses are in a particularly constrained position, being squeezed between the raw material suppliers and downstream users. For example, Fabio Catellani, Italy-based managing director at Foam Supplies, cites both the shortage and prices of raw materials as being problematic. ‘We are trying not to lose volume, but competitors are not always following the usual trend, especially the big guys,’ he said.
However, he added, being part of a much larger company helps. But, he said, every week there is a new problem – and if they cannot get hold of a component that makes up just 0.05% of a formulation, that formulation cannot be produced. ‘There are problems with all materials,’ he said. And it’s not just the PU components where there are issues. ‘The price of metal drums went up dramatically, as did the price of plastic IBCs.’ The price of isocyanates has tripled since mid-2020, he said. ‘It would be good for everyone if there was stability, not the ups and downs.’ But in such a cyclical business, this is unlikely, he conceded.
Turkish company Kimteks’ Meriam Rhinaoli agrees. ‘Business has been very tough because of raw material shortages,’ she said. ‘We are doing better than last year in terms of quantities, but it is difficult because no one has raw materials, and even when they do the prices are high. You cannot serve customers on time, and it is an embarrassing situation when you are used to being regular.’
Ekin Tukek, general manager at another Turkish company, Flokser Kimya, says that the company has managed to find the materials they need because of their good relationships with suppliers in both Europe and Asia. ‘MDI cost is a problem, but also other raw materials,’ she said. ‘Costs are all too high, as are the costs of logistics. Passing those costs on to customers is very difficult as the increase is so high and so rapid. We are having a hard time explaining it to customers, so it affects our profits.’
Plixxent CEO Jorg Schottek agrees that communication is key. ‘It is really important that we overcome these shortages together with our customers,’ he said. ‘We are very open with communication about what is going on in the market.’
The company’s chief sales officer, Alexander Strietholt, added that they have still managed to fulfil 99.99% of orders received from customers. ‘I think 2022 will be challenging again because the raw material situation has not really changed,’ he said. ‘But everyone is in a growth mood. As soon as we have chips from China, the automotive industry will restart and boost the industry.’
Schottek agrees that the dwindling demand for automotive is an ongoing issue and is happy that they are not heavily exposed to the sector. However, he said, every other day another downstream supplier goes out of business in Germany, and this is a real concern. Logistics are another big problem. ‘Sometimes the cost of a container can be more expensive than the material inside it,’ he said.
Its size as the largest independent system house has helped, Schottek said. ‘We move more than 100kT/year, and this also has a strong impact on our sourcing programme,’ he said. ‘Price increases are always tough and for the systems market it’s not popular, but it is important not to increase them without talking to the customer. What we get as feedback is that a secure supply is more important to them than just the prices.’ While these discussions may be tough, he said, and the customer may end up going elsewhere where they have found a better price, a month later they may be back because that new supplier cannot fulfil their orders.
One player added that the market is aware that costs are going up. ‘There is no market at the moment where prices are not going up,’ he said. ‘The biggest problem the customer has is that they have to increase the prices of their products, and in some cases it is not so easy.’
Markus Eckert, SVP and head of the urethanes systems business unit at Lanxess, says that having production facilities in multiple continents has been advantageous. ‘Looking back, at the beginning of 2021, we projected that during the second half of the year it would all get easier and better, with congestion resolved, but logistics and the supply chain are still volatile,’ he said. ‘Some raw materials are short, for different reasons – either force majeures, logistics and now from China energy constraints.’
There is also an shortage of overseas vessels and trucks, he said. ‘Many different reasons have come together to create a challenging environment for the whole value chain,’ he said. ‘For a time, we will need to stay flexible and agile. But it is also a chance to differentiate.’
Brenntag sales engineer Jean-Pierre Jacobs believes that Europe has become too reliant on Asian providers, which makes them more vulnerable. ‘A certain amount of production needs to be in Europe,’ he said. ‘We killed our production, and now we are dependent on Asia. If the ships stop coming, we do not have the materials. This is a lesson we should learn. Maybe if we go in the direction of bio-based materials, or using waste as a raw material, we will be ahead of the Asians – don’t copy China, see what is next and keep it.’
Further downstream, at Belgian toll manufacturer Proviron, Business Manager Ief Proost said that in recent months the market has been quite volatile, with raw material availability and prices varying a lot over time and, he said, they have seen problems with pretty much everything the company has to source. ‘We have seen differences in international supply chain and energy prices,’ he said. ‘It makes supply security more difficult. We have been quite lucky as we got our raw materials in time, and there were force majeures, but we managed to find alternatives. It was a busy year for sourcing!’
Anje van Went, executive manager at Nestaan, which specialises in rigid PU for the insulation sector, cites the ongoing transition in blowing agents as an issue, in addition to raw material shortages and high prices. ‘Business is good. Sales are up but margins down because of high prices,’ she said. ‘It’s been a difficult year because of coronavirus, but we are eager to see what 2022 will bring.’
While the company has been able to get all the raw materials it needs, the prices have often been high. ‘It is more important that we can supply our customers,’ she said. ‘We always say 'better bought expensively than not supplied'. If we don’t get our raw materials, we have to stop production. That is a no-go.’
She is clear, however, that in the insulation market prices must go down or polyurethane will lose out to other, non-polyurethane products. ‘The MDI suppliers need to make a gesture,’ she said. They are in the difficult position of getting a price rise one day, but not being able to put their own prices up for a month. ‘And the customer needs to be able to sell, and if they can’t sell, it’s a problem.’
They are having to swallow the high prices themselves for now, she said, and are hoping for better times ahead. ‘MDI suppliers need to make a change,’ she said. ‘We hope the price will go down, because it has to.’
Lanxess’ Eckert remains optimistic for 2022, though. ‘In 2021, there were many new challenges coming out of the first year of the pandemic,’ he said. ‘Then, there were many new challenges from picking up the economy, but I think 2022 could be a very good one for the industry, if the world further resolves and the logistics and supply chain situation improves. The demand trend is strong for 2022 in various industries. Many, I believe, are running a lower stock level because of supply chain problems. The current just-in-time setup may be revised in future to make it more stable, and the volatility will stay for some time. Value chains are well advised to rethink this. If a container gets stuck, or a customer cannot get hold of another ingredient they need, they cannot order so much. We hope some of these brakes will be released in 2022.’