GSAFA Jackpot 2021 Trade Show Forum: Fence Industry Supply Chain & Lead Time Challenges
It was great being at the Garden State Chapter American Fence Association Jackpot 2021 Trade Show in Atlantic City, NJ, October 29-30, 2021. The Supply Chain Forum explored a timely and important panel discussion on the “Challenges with Supply Chain issues facing the Fence Industry and its effect on Lead Times and Prices.” Guest speaker Joel Lindahl, Vice President of Vinyls for ICIS, formerly Chemical Data Inc. (CDI), discussed the challenges companies are experiencing in the PVC (Vinyls) industry.
During the moderated forum, Lindahl talked about the shortages facing the PVC industry and how there are several factors involved in causing them. He explained that the shortages may continue through most of 2022. Resin prices have reached an all-time high, which began in May 2020. What is causing this record-setting price behavior? The answer is supply and demand.
Why is supply down?
1. Pandemic.
2. Hurricanes, Aug.-Sept. 2020.
3. Winter storms, Jan.-Mar. 2021.
4. Hurricanes, July-Sept. 2021.
5. Producers cut back at the onset of the pandemic.
6. American and European producers have had several mechanical failures.
For China buyers: China’s dual control policy has not hit us yet. This was enacted a few weeks before the conference in order to force their provinces to meet reduced energy and environmental goals. It’s expected to last through the winter Olympics and reduce PVC output by an estimated 25-30% (you’ll know when it hits).
Lindahl notes the global supply chain has adjusted to trade tariffs in recent years. Logistics are disrupting the global supply chain. Container freight rates have surged, cargo-hauling routes were closed, and the arbitrage for PVC supply from Asia to the USA is priced out of the equation due to freight costs and delays, rail delays, and trucker shortages. This plagues domestic markets.
Human nature is changing demand. Pandemic behavior caused a shift in emphasis on the home. Most homeowners have been home and realize they haven’t kept up with their backyard or outdoor space. They’re investing money in their home, yard, fence, masonry, landscaping, roof, siding, etc.
Supply disruption combined with record growth is driving PVC prices up. Today, PVC resin margins are very high, well above the cash cost to produce. Prices are being bid up in global markets as demand remains strong causing pressure to bring up domestic prices. Oil and natural gas prices are rising and ethylene is expensive, all of which leaves resin buyers in a weak position.
Resin producers know manufactures have orders to fill and they will keep pushing the price envelope. The buyer/installer doesn’t want to miss out on the number of orders and worries more about availability than price. And, we should! This results in strong margins above cost, due to high resin prices.
The only entities making a huge profit are the resin producers. Not the extruders (like us) who must pass through the price increase. Not the local fence companies (also like us) who must charge more to stay in business.
On the horizon: Anticipate housing to continue to drive strong demand.
We expect:
• Moderating energy costs by Q1.
• Some improved supply.
• Prices may stay at record levels, falling some in late 2022.
• Producer power to continue.
• Buyers must focus on the security of supply (build a relationship and show loyalty).
• No PVC price collapse on the horizon.
On a personal note: The public is well aware that there are shortages in everything they buy and prices have gone crazy high for those products. They mentally have accepted it so the resistance to paying more and waiting has diminished tremendously.
The Jackpot 2021 Trade Show was at Harrah’s Resort Atlantic City and was sponsored by the Garden State Chapter of the American Fence Association. Joining Lindahl on the panel was Micheal Cowden, senior editor for Steel Market Update, and Will Whittaker, president of FLW Wood Products, Inc. The supply chain forum was moderated by Tony Thornton, CFP, CAGOI, CAGSD, executive director of the American Fence Association.