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Lots of demand, limited supply

Article-Lots of demand, limited supply

Skyrocketing resin prices might just be the tip of the iceberg in what''s about to become a generations-long struggle for raw materials.

One of the most startling revelations I''ve come across of late is in Jared Diamond''s new book, "Collapse: How Societies Choose to Fail or Succeed." In the book, Diamond, profiles ancient societies that collapsed-Easter Island, Anasazi, Maya, Greenland Norse-and contemporary societies that are at risk-Rwanda, Haiti, China. Diamond provides analysis on several levels: resource management, agricultural management, soil management, hunting practices, environmental change (usually drought), population management, religious influence, cultural influence, and governmental initiative and response.

The revelation came to me from the chapter on China. This is what Diamond wrote that caught my eye: "If China''s per-capita consumption rates do rise to First World levels, and even if nothing else about the world changed-e.g., even if population and production/consumption rates everywhere else remained unchanged-then that production/consumption rate increase alone would translate (as multiplied by China''s population) into an increase in total world production or consumption of 94% in that same case of industrial metals. In other words, China''s achievement of First World standards will approximately double the entire world''s human resource use and environmental impact."

We all know by now that China is in the midst of an effort to fully industrialize itself as quickly as possible, and we have all heard the statistics about how much oil, steel, and concrete China is consuming. We''ve heard about the massive effort underway to build modern highways, modern homes, and modern utilities to support the burgeoning manufacturing sector. We''ve all heard how China, right now, has more mobile phone users than the U.S. has people.

Although any country''s modernization efforts might require substantial demand for raw materials for a short time, China''s shear size makes its effort unprecedented and, at times, overwhelming.

Ask yourself this: What, physically, will it take to bring countries like China up to "first world" status? Just how much more raw materials will be required? Jared Diamond says it will take a doubling of the current rate of consumption of raw materials and environmental impact.

Not to be too elementary about it, but the fact is that the world''s supply of raw materials is limited and dwindling. For exhibit A on the matter, you need look no further than the current cost for oil. Although world supplies of oil are relatively stable and constant, demand increases almost daily, thanks mainly to the development of countries like China.

We in the plastics industry, of course, are familiar with the consequences of this dynamic: Plastic resin prices have increased, on average, about 40% since 2003. As I write this, oil is trading at $60/bbl, and some say that number could hit $80 before the year ends.

The point is this: We are, by all accounts, in the midst of a worldwide raw materials demand boom that very likely will last indefinitely. That means things will get worse before they get better. That means your planning, operations, and business strategy must assume rapidly escalating plastic resin prices. It also means that your customers have to be made of aware of how your costs are changing and accommodate them in your compensation (yes, I know, it''s easier said than done).

I''d like to know how you are dealing, or will deal, with this increasingly volatile cost environment. Are you moving away from high-cost engineered materials? Passing on cost increases? Adding automation and trimming labor? Tell me what you''re doing.

Jeff Sloan, Editor-in-Chief

[email protected]

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