From potato chip packaging to car parts, rising plastic prices are brewing the next U.S. inflation crisis.

The supply chain crisis triggered by the Middle East conflict continues to spread, pushing up the price of plastic raw materials.

According to Bloomberg, the indicator measuring the wholesale prices of plastic resin and raw materials jumped 14% last month, reaching a nearly four-year high, mainly due to the war in Iran cutting off key raw material supplies. Several U.S. plastic manufacturers say the ability to absorb rising costs is near its limit, and price increases are inevitable. Large companies such as Costco, Whirlpool, and Lowe's have warned in earnings calls that rising resin costs will increase raw material expenses in the second half of the year.

Meanwhile, U.S. CPI rose by 4.2% year-on-year in May, hitting a more than three-year high, mainly driven by energy prices. The impact of rising plastic costs has not yet been fully factored in. Analysts point out that as costs are passed down step by step, price pressures on the consumer end will continue to emerge in the coming months, with price increases likely for everything from food packaging to household appliances, automobiles, and daily goods.

War shocks petrochemical supply, plastic raw material prices surge

The root of this round of rising plastic costs lies in the impact of the Iran war on the petrochemical raw material supply chain. About 98% of plastics are made from fossil fuels, and products such as polyethylene are fundamental raw materials for consumer goods like food packaging, automotive parts, and household appliances.

Asian and European manufacturers are the first to be hit, as they are highly dependent on naphtha as raw materials for ethylene and propylene, and naphtha supplies are particularly affected by the Middle East situation. Raw material shortages have already forced a Japanese snack company to temporarily switch some product packaging to black-and-white printing.

By comparison, the U.S. previously enjoyed a cost advantage due to its shale gas ethane route, and was relatively less affected by the Middle East disruption. However, as Asian and European buyers scramble for supplies globally, domestic raw material supplies in the U.S. are becoming tighter, and businesses hoarding goods are further amplifying upward cost pressures.

Midstream companies under pressure, cost transmission chain underway

Upstream and downstream across the plastic industry chain are universally feeling cost pressure.

Shawn Gross, CEO of Pennsylvania plastic processor Viking Plastics, revealed that since the beginning of this year, prices for some polyethylene raw materials have risen by more than 40%. The company’s upstream supplier is Dow, and it supplies Ford downstream. He said the company could only raise prices more actively for customers and that the real impact has yet to arrive.

Edward Dominion, founder of Texas packaging company D6 Inc., said raw material costs have doubled, and shipping, fuel, and other fees are also rising, so he has begun to pass the costs onto customers. He also noted that some buyers can currently only get about 70% of the resin they need, and delivery times for some materials have stretched from one month to three months. He warned that if shortages persist, stockouts could appear on store shelves as early as August or September.

Frequent earnings warnings, cost transmission accelerating to consumers

Several large enterprises have publicly warned of plastic cost risks during earnings season.

Whirlpool CEO Marc Bitzer expects rising resin prices to push up raw material costs in the second half of the year. Lowe’s says it is working with suppliers to mitigate the impact of price increases in commodities including resin. Cava Group has factored the rise in energy-related packaging costs into its full-year performance guidance.

Costco CFO Gary Millerchip said in an earnings call that as resin costs are gradually passed onto products, inflation will appear in multiple non-food categories. Especially as oil prices remain high, goods containing plastic components, polyester, or cotton may see price increases.

It is worth noting that prices for petrochemical products have fallen somewhat in recent weeks as oil prices dropped below $100 per barrel, and slowing demand has provided some buffer. But Gross believes, the damage has already been done—upstream manufacturers like Dow have implemented price increases for downstream, and costs are being passed down the supply chain to consumers.

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