Sabic says deliveries are improving, but not all customers agree

Officials with Saudi Basic Industries Corp. say that the firm is meeting material orders at the same rate that it was before it began to install a new computer system in October.

But supply problems still are causing chaos for many North American plastics processors.

“We have made significant progress in returning to normal operations over the past few months, and are operating at pre-implementation fulfillment levels,” spokesperson Susan LeBourdais said in a Feb. 22 email to Plastics News.

In 2015, Sabic began working with customers, suppliers and business partners to prepare for a new global enterprise resource planning (ERP) system. The new system is designed to further automate and simplify Sabic's business processes.

The installment has led to widespread supply disruptions for Sabic materials over the last several months. Market sources have told Plastics News they were seeing delays for shipments of polycarbonate, PC/ABS, polybutylene terephthalate and related compounds.

“While not every individual customer may be experiencing the same levels of improvement in all areas, depending on their particular situation, we are moving product at higher-than-average shipping rates, confirming orders at pre-ERP implementation levels and fulfilling our backlog of orders,” LeBourdais said. “We are making every effort to improve our service levels and return to normal operations as quickly as possible.”

Sabic — which is based in Riyadh, Saudi Arabia, with North American headquarters in Houston — and other suppliers now have announced price increases, which have complicated the situation.

Although some processors have seen improvements in recent weeks, others — especially those in the automotive and medical end markets — continue to struggle to find Sabic materials or replacement materials made by other suppliers.

“I understand Sabic had to chip away at customers,” one medical device manufacturer told Plastics News at the recent UBM Advanced Manufacturing Expo trade show in Anaheim, Calif. “The automotive guys got [material] first. If they shut a Prius line down, they have to pay a penalty. You have to wait your turn almost, but we definitely have had issues with getting supply.”

Most molders who spoke to Plastics News did not want to identify themselves. Another medical processor at the Anaheim show said his firm was finding it necessary to go back to customers that had specified an unavailable Sabic material. The processor had to get each customer's specific permission to substitute a comparable resin and gain U.S. Food and Drug Administration authorization for the variation.

In one extreme example, a medical injection molder told Plastics News he had to source material from a competing medical molder, who charged him almost five times the standard price.

“I think that particular molder took advantage of the situation,” the molder said.

In more friendly transactions, molders have shared or sold material to each other at fair prices.

“You're kind of doing it for your customer — you're not doing it for another molder,” said one executive whose firm has resold Sabic material. “It's kind of short-sighted to say ‘No, I'm not going to sell it to you' when your customer is begging you to help them out.”

Other molders told Plastics News that their production schedules have been impacted by shortages of Sabic materials, leaving them scrambling in order to avoid losing customers.

In the medical market, this could have a serious effect.

“[The problem is] not understanding when material deliveries will be; it's putting machines down,” one medical molder said. “It means we miss deliveries to our customers, which could, in turn, mean missed surgeries down the road. It has been very painful.”

Plastics market veteran Jeff Mengel said the supply issue at Sabic “isn't felt the same by all customers.”

“I have several clients that say the worst is behind them and have no work stoppages currently,” Mengel said in an email. “And others that indicate changing schedules for material availability has increased startups and scrap rates.”

Mengel is a partner with the Plante & Moran PLLC consulting firm and the firm's national practice leader for plastics. One of his clients described the Sabic shortage as “the worst material crisis since the Arab oil embargo.” Another Mengel client has hundreds of medical parts that rely on Sabic materials and now has to decide which parts they wish to rationalize, which to continue production and which to convert to new material.

But the challenge in converting to a new material, Mengel said, is that it costs $7,000 to $10,000 to requalify each part, and the process takes several weeks.

The Sabic shortage has benefited other material suppliers such as Covestro, which is the only other materials maker that produces polycarbonate in North America.

“We've had an overall spike in demand for not just this [medical] market but our total business,” said George Paleos, Covestro's industrial marketing vice president, in an interview at the Anaheim show.

“Overall supply and demand is very tight,” he added. “We're assessing the situation, and we're determining whether we can or cannot support it.”

Ed Holland, president and CEO of resin distributor M. Holland Co. in Northbrook, Ill., said his firm has had many inquiries from customers to get PC, ABS and alloys.

“We've been able to help some, but not all,” Holland said. ”We need to make sure we keep our long-term clients supplied with material.”

He added that although the Sabic shortage has created opportunities for his company, it's been a challenge for the overall North American plastics market.

“This total market disruption affects everybody who buys these products,” he said. “It's also putting a strain on logistics and operational teams due to the significant increase in immediate delivery needs.”

Correspondent Roger Renstrom contributed to this report.