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Oil and it’s Current Impact on Superabsorbent Polymers - Spring 2008
The purpose of this article is to share with you certain market forces that are currently coming to bear on superabsorbents. About three years ago we feared that oil very well might reach US $65.00 per barrel. We also feared the effect this cost might have on absorbent polymers. Recently, oil exceeded US $130.00 per barrel. The impact of this new high cost for oil is being felt at present and will surely continue to shape how we do business in the future.
The cost of transportation is having major impact on us as I imagine it is on you. Skyrocketing fuel prices have caused the transportation industry to pause and try to determine how it can continue to operate. Transportation companies have closed their doors virtually overnight. Increases in freight rates of 50% or more in a matter of a few days are commonplace. Fuel surcharges exceeding 60% for full truckload, 35-40% for less-than-truckload quantities are standard fare. Diesel fuel is about $4.50 per gallon. Air transportation costs increase almost every day. And ocean going freight is being hit with price increases in every conceivable manner from taxes to duties to handling fees to port fees to various other per container fees.
Certain superabsorbent manufacturers are talking about substantial price increases to help offset the sea of red ink associated with freight costs. We were informed by a major SAP manufacturer just the other day that they are implementing an 11% price increase to help offset transportation costs. Other superabsorbent manufacturers have been more modest in their discussions about and implementation of price increases but price increases are on the horizon nonetheless.
In addition to the effect of escalating oil prices on transportation, we are facing increases in the costs of superabsorbent polymer raw materials and production. If you go far enough back in the raw material chain of sodium polyacrylate based superabsorbents, you get to oil. Propylene is the primary building block for acrylic acid which is the primary building block for superabsorbents. Propylene has increased in price by ~30% over the last 12-15 months. Acrylic acid has increased in price by ~30% as well over that same time frame. Energy costs associated with production processes have jumped significantly (~+8%). The list is almost endless.
Unlike three years ago, superabsorbent and necessary raw materials supply is not the issue. Inventories of finished superabsorbent and critical raw materials appear to be in good order. Capacity for producing such items is being more effectively used. So again, supply is not the problem at this moment. Escalating prices for virtually everything associated with superabsorbents are the problem.
Emerging Technologies inc. is monitoring this situation very closely. We do not want to respond to these developments in a “knee-jerk” fashion. But we know that we cannot continue to bear the full brunt of ever-escalating costs associated with oil. Price increases very well may become a reality during the remainder of 2008
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