Houston (ICIS)-Rising prices of chemicals and plastics used in construction are raising costs in the industry, and more increases are likely to occur later this year.

According to data from the US Bureau of Labor Statistics, the producer price index (PPI) for the final demand of the US construction industry rose by 0.6% from April to May. In contrast, the overall U.S. economy is 0.8%.

The American Association of General Contractors (AGC), a trade organization representing contractors, conducted its own analysis based on PPI data released by the United States. AGC data shows that the price increase of construction materials is much higher.

"The rise in the prices of building materials producers in the past year has far exceeded the contractor's ability to charge more for the project," said Ken Simonson, the association's chief economist. "This gap means that contractors are bearing huge costs that they did not anticipate and cannot pass on."

The US-based adhesive manufacturer HB Fuller plans to increase its price by US$75 million in August and September on the basis of the US$150 million that took effect from March 1 to July 15.

The price increase is a response to cost. HB Fuller predicts that its raw material costs will rise by more than 10%, much higher than its earlier forecast of 5-8%.

HB Fuller is the first major US chemical company to announce earnings. Its comments may indicate that other paint, adhesive and sealant manufacturers will acknowledge more cost pressures when they release quarterly results later this month.

The adhesive is made of vinyl acetate monomer (VAM), and the US spot export price assessed by ICIS hit a record high. On June 22, ICIS assessed an increase of more than 200% over the same period in 2020 and an increase of more than 175% over the same period in 2019.

Other chemicals and plastics used in construction are also at or near the highest levels in history.

-According to the assessment by Ansense on June 22, the spot price of liquid epoxy resin (LER) in the United States has increased by nearly 170% compared with the same period in 2020 and by nearly 130% compared with the same period in 2019. Epoxy resin is one of the few chemicals whose prices in June 2020 are lower than in June 2019.

-The US contract price for polyvinyl chloride (PVC), a plastic used to make pipe profiles and siding, hit a record high.

-Buyers stated that PVC products are made of plasticizers, and the supply of plasticizers from domestic manufacturers is still insufficient to meet demand. Therefore, manufacturers should maintain order control in the short term.

-Polyurethane is used in coatings, adhesives, sealants and insulating materials. One of the main raw materials of polyurethane, diphenylmethane diisocyanate (MDI), is close to its historical high.

-According to ICIS, another insulator, expandable polystyrene (EPS), is close to the all-time high set in May. On June 22, the spot price of U.S. bulk earnings per share rose 84% year-on-year and 35% compared to 2019.

-The quarterly contract for titanium dioxide (TiO2) in the United States has reached a record high, but it is not much higher than in 2020 or 2019. Titanium dioxide is a pigment used to make paint opaque.

Due to the suspension of operations at a South African mine that produces ilmenite and rutile ore used to make pigments, titanium dioxide (and coatings) may face additional cost pressures.

Rio Tinto, which runs the Richards Bay Mining Company, declared force majeure after the general manager of the mine was murdered.

Several factors have contributed to the increase in the price of construction chemicals.

There is a high demand for unsaturated polyester resins (UPR), boats and recreational vehicles (RV), and construction.

For polyurethane, the demand for isocyanates and polyols in applications other than construction is increasing, such as automobiles, electrical appliances, and mattresses.

For general construction chemicals, the homeowner carried out a do-it-yourself (DIY) project during the coronavirus quarantine.

In the United States, the active hurricane season has led to the closure of many factories along the Gulf Coast.

Due to the winter storm Uri, the petrochemical plant on the Gulf Coast suffered a large-scale blackout in mid-February, and the inventory is still recovering.

Due to the tight inventory, many companies maintained force majeure and sales distribution for several weeks after the factory resumed normal operations.

Fires and power outages unrelated to severe weather also led to plant closures and further tightening of supplies.

Shipping restrictions and container shortages have disrupted supply chains in other industries and are restricting supply in the petrochemical market.

Due to the liberalization of the economy and government spending, the overall demand is high.

Looking ahead to the next few weeks, the market may become more balanced as the company cancels the final force majeure and sales distribution.

Dow recently lifted its force majeure against VAM, which it announced in February after the winter storm.

U.S. PVC production continues to rise, while weekly export prices of U.S. PVC have been declining.

U.S. ethylene contract prices have fallen to pre-storm levels, which should eliminate cost pressures on downstream producers.

If chemical plants can operate without any major power outages, they should be able to rebuild inventories, thereby making the supply chain more resistant to sudden outages.

The problem is that until the hurricane season ends on November 30, the petrochemical industry will remain vulnerable to shutdowns.

Meteorologists predict that the hurricane season will be above average. A tropical storm has made landfall in Louisiana, where there are several petrochemical plants and oil refineries.

If the hurricane does damage the plant, the company may need more time to resume operations. The same factors that caused the shortage of petrochemical products have lengthened the lead time for making replacement parts for petrochemical plants.

Additional reporting by Stefan Baumgarten and Bill Bowen

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