The concerns about supply chain inflation hurting chemical demand are likely very end-use specific. While the packagers and consumer goods sellers are seeing significant inflation in all raw materials, not just polymers, the packaging is a minor component of the cost and value of what they are selling and while it may hurt their earnings, it is unlikely to stifle demand – none of us is likely to stop buying milk, orange juice or cookies if the prices rise a couple of cents because the manufacturers are trying to cover some of their higher costs.
The inflation effect is very different in durables as the material content is much higher and its impact on costs more severe. As all materials seem to be in inflation mode at the same time, it is unlikely that we will see many substitutions – such as wood for plastic or steel for plastic – also because the cost of switching is too high in most cases where a switch is possible. We may see some material switching in packaging at the margin – containerboard versus polymers for example, but containerboard prices are also higher. US railcar shipments do not suggest any slowdown in chemical demand.
Source: AAR, Bloomberg, C-MACC Analysis, May 2021
The demand risk will come if the consumer says enough is enough and stops buying the finished products – the Manheim used car index that we have shown several times recently shows that the consumer is not that price sensitive. We are unconvinced that demand will be impacted unless prices move materially high than today or interest rates rise as governments try to contain inflation, which has been standard practice in the past. See today's daily for more.