‘Plastics Meltdown’ Hits Australia
The fallout from the Iran conflict has spread to the packaging industry with rising costs and shortages of key materials causing a ‘plastics meltdown’.
Iran’s seizure of the Strait of Hormuz and the ensuing oil crisis has caused a devastating ripple effect on the international supply chain. The increasing price of oil puts tremendous strain not only on Australia’s vital transport and logistics industry, but also the manufacturing and supply of essential items such as plastics.
Plastics are an integral building block of the modern world. They are used in everything from everyday household goods and appliances to construction materials, healthcare, and automotive parts, But, its primary use is in packaging, which accounts for around 40% of its applications.
Plastics are vital components for countless packaging products and any shortage in their supply will have drastic consequences for consumers and business operators alike.
Plastic is a by-product of oil. It is derived by refining fossil fuels i.e. crude oil and natural gases into monomers like ethylene and propylene. Through polymerisation, these molecules are linked into long chains called polymers (polypropylene and polyethylene). Polymers are then used to create pellets, or nurdles, of resin that are melted down and moulded into plastic products.
The current oil crisis has caused a major disruption to this process, and Australia’s increasing reliance on imported materials puts our already fractured supply chain right in the firing line. Around 77% of virgin polymers used locally are imported, and Australian domestic supply of plastics has tightened with the recent closure of Qenos, leaving Viva Energy as Australia’s sole producer of polypropylene.
Packaging News (PKN) reported that: “Viva Energy has advised customers it will increase prices and ration supply from its Geelong refinery, as it moves to maximise supply continuity for critical industries.”
The price for polyethylene surged 30-50% in a week as did transport costs rising by 250%, equating to a devasting and imminent collapse of the supply chain. The price of recycled PET, which is linked to the price of virgin polymers, has also risen, which experts suggest could leave an opportunity for recycled materials to be used in applications predominantly reserved for virgin polymers.
The severity of the impacts will be largely dictated by the duration of the conflict and whether or not is escalates into an all-out war. The uncertainty alone has been enough to destabilise international logistics networks and cause global chaos.
Australians may face the prospect of rationing at the pump as the Albanese government scrambles to shore up national supply, which is fast running out. Data from early March shows Australia has 36-38 days of petrol consumption in reserve and 30-32 days of diesel and jet fuel, far below international standards.
As the oil price skyrockets, so too will consumer prices across the board. The National Farmers’ Association has warned of a looming increase for the price of dairy and produce as costs for harvesting and transport rise amid the fuel shortage. This will be exacerbated further by the ‘plastics meltdown’ making packaging more expensive and harder to source, yet another cost that will be passed onto consumers.
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The impacts from the oil crisis will be far-reaching and long-felt in Australia, with many small business operators left unable to compete. Even if the Strait of Hormuz opened tomorrow and oil started flowing freely again, it could take years for the Australian economy to recover.
MADCAP Global Managing Director Stephen Morris is among business leaders calling attention to the dire situation Australia is facing. Working first-hand with international plastics manufacturers, Stephen is at the coalface of the meltdown as supply drastically constricts.
“We’re seeing our plastic manufacturers of woven textiles unable to operate as they have in the past without a regular supply of resin for value-adding extrusion to take place,” Stephen says.
“Prices for raw material are increasing beyond what is feasible for most manufacturers and importers, and the fact is that many can’t afford to keep going. Current supply is limited and it won’t be long before it reaches a critical level that will impact consumers more than anyone else.”
If anything, the Iran conflict has revealed just how vulnerable Australia has become as an economic power. Every national asset that was privatised, every service that was outsourced, and each slice of land that was carved up and sold off to foreign investors has become a chink in the armour. We have been placed at the mercy of corporate interests and the whims of external influence.
It was allowed to happen by poor planning and inept decision-making over successive governments that have weakened Australia’s sovereignty and eroded our global standing. At a time when we could be showing strength and resilience in the face of tyranny, we tremble. That’s not the future our ANZACs fought for our country, and it’s a shameful betrayal of the Australian people.
