What Happened The Last Time Oil Markets Went Crazy

At least twice in living memory, international crises have raised alarm bells for plastics processors about where they would get materials to put in their hoppers and at what price. (Photo: Matthew Naitov)

How many of you remember the Arab oil embargo of 1973-1974, when crude oil prices quadruple in just five months and plastic supplies have become hard to find? Or the second great oil shock of 1979, when oil prices jumped 149%?

Not many of you I guess, but I was starting my career at Plastics Technology back then, and the way the oil and gas markets today are being disrupted by events overseas brings back memories.

The first major oil shock (you can google it) was born out of the first Arab-Israeli war. Oil production in the Middle East was nationalized and exports were curtailed to the United States and some other Western countries that had supported Israel. Between October 73 and March 74, oil prices exploded from $3 to $12 a barrel. (Those were the days!) It was a scary time. The gas lines were around the block. And when I had to fly somewhere for an interview, I remember landing in an airport at night and renting a car that only had a quarter tank of gas. “Fill it when you can find more,” was all the advice I got.

To top it all off, the Nixon administration decided it had to take over the allocation of scarce oil imports – and it initially decided that the plastics industry was not essential and therefore unworthy of much oil supply. They must have thought that in a crisis, we could certainly live without straws for cold drinks and other disposable items, as well as Hula Hoops and other cheap toys. I joined a delegation of plastics publishers who traveled to Washington, DC, to tell an administration official that plastics meant more than that to the US economy — so much more. Eventually they got the message and loosened the supplies.

But the effects were evident at my first NPE in 1973 (which then only filled the old East Hall at McCormick Place). At the show, one of the leading resin companies, chagrined at having to turn away customers because it was exhausteddistributed “Crying Towels” on its stand, instead of sales contracts.

Plastics processors have suddenly become interested in the origin of their raw materials. In our January 1974 issue, we published a fold-out diagram on the inside back cover that showed how each type of plastic resin is derived from crude oil and/or natural gas. It proved surprisingly popular, and we had to do a separate print of just the Simplified flowchart of plastic resins – how they are derived. It is now long out of print, alas.

To investigate how processors were coping with this unprecedented challenge of soaring prices and tight supplies, I went on the road to learn about efforts to conserve resin by recovering process waste. Recovering movie scraps online has suddenly become a hot topic. I remember visiting a pipe producer in the Midwest who had automated a way to suck PVC sawdust from chop saws onto their extrusion lines. He also salvaged hundreds of pounds of PVC from large pipe dies by quickly dismantling them after a race, before the resin degraded. Another publisher investigated how IT controls were gaining acceptance as a way to avoid creating scrap in the first place.

These concerns resurfaced a few years later when the 1979 Iranian revolution caused the second oil shock, when oil prices jumped another 149% from $15.85 to $39.50 a barrel between April 1979 and April 1980. This was accompanied by a 31% year-on-year increase in the average prices of plastic raw materials, as evidenced by the 1979 U.S. producer price index for plastics and resins. I guess the reason for the increase in the PPI for plastics was only 31%, versus 149% for crude oil, was that the plastics industry was more dependent on natural gas than oil, even back then.

If you don’t remember these events, you’ve no doubt heard of the “stagflation” of the late 1970s and the deep recession of 1981-82 resulting from the Federal Reserve’s efforts to pull the US economy out of this slump. Those were uncomfortable times, and some experts warn we may have to relive them.

I am convinced that the industry today is much, much better prepared to overcome such challenges than it was all those decades ago. Here are some reasons:

• Energy efficiency is no longer a topic that produces a flippant shrug or rejection (“Yes of course”). Almost all of the processors my colleagues and I talk to are taking this seriously and are equipping their plants with more efficient lighting, process cooling and material handling, as well as electrical machinery.

• Similarly, recycling factory scrap is practically gospel, as many processors implement “zero landfill” policies.

• Purchasing post-industrial and post-consumer waste from outside sources is also a growing trend, especially among packaging producers. Although many processors claim that using recycling costs more than virgin resin, this calculation could change under the steady pace of resin price increases.

• So-called “advanced recycling,” which involves various chemical means of purification or depolymerization and replenishment of “virgin-grade” recovered resins, has exciting and barely tapped potential for high-volume recovery of more types plastic waste than ever before, and at a modest cost.

• Recent interviews with packaging producers highlight that lightweighting is another popular step towards sustainability, but the initial motivation – cost reduction – may be more important than ever.

• Computer controls are much more sophisticated than in the 1970s. Microprocessors didn’t even appear on plastic equipment until 1975. Reduced scrap levels are a result.

• Automation, which was in its infancy in the 1970s in the plastics industry, is now a high priority for plastics processors. I hear the repeated comment that automation is key to addressing chronic labor shortages that have worsened since the COVID-19 pandemic, as well as a brake on rising labor costs. work. This factor, combined with the computer controls cited above, makes “off” operation a daily reality in factories large and small that would once have considered it a pipe dream.

• Globalization is not dead, but domestic processors are reaping new opportunities through “reshoring”, which is developing with renewed vigor, even urgency, in response to global events.

• Surveys conducted by this magazine in the 1990s indicated that new efficiency-enhancing technologies often took decades longer to be widely adopted here than in Europe or Asia (which then mainly meant Japan). Today’s plastics processors have a wide range of new options – additive manufacturing, conformal cooling, Industry 4.0, to name a few – and my personal observations suggest that US processors are much less hesitant than in the past to take advantage of opportunities to prosper.

If any of the items I just quoted suggest something you’d like to consider for yourself, I can think of no better opportunity than the upcoming PTXPO 2022 show at the Donald E. Stephens Convention Center in Rosemont, Illinois from 29 to March 31. . More than 230 exhibitors will be there to help you achieve your productivity and profitability goals, despite all the challenges that will be thrown at you.


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