By Hyunjoo Jin, Daewoung Kim and Sophie Yu
SEOUL/BEIJING, March 26 (Reuters) – From beer and crisps to noodles, toys and cosmetics, companies – and consumers – across Asia are bracing for a crisis as the Iran war wreaks havoc on supply chains, plastics and oil supplies, upending everyday life and sending prices soaring.
For many, it is already crunch time.
Choi Gun-soo, the manager of a 57-year-old South Korean factory that makes plastic films used by farmers to cover crops as well as by television manufacturers, said his suppliers were raising prices of some raw materials as much as 50%, while other suppliers had simply run out of stock.
“Since we’re out of raw materials for some products, we’ll have to gradually shut down the machines, and the next one to two weeks is likely to be very critical,” he said.
While they had weathered past oil shocks as well as the COVID-19 pandemic, the impact from the war was unprecedented, Choi said, adding that the company had cut production to only 20% to 30% of usual output.
“This is the first time we’ve been hit this hard. We’re really shaken.”
At the heart of the supply chain disruption is the Strait of Hormuz, a narrow stretch of water off Iran’s southern coast through which roughly one‑fifth of the world’s oil and liquefied natural gas normally passes.
Asia, which relies more heavily on crude oil, gas, fuel and fertiliser from the Middle East than other parts of the world, is the most vulnerable to supply disruption.
The most acute shortages right now are in oil derivatives such as naphtha, sourced predominantly from the Gulf and used in refineries across Asia to make the plastics and other petrochemicals that go into almost every manufactured product.
Already prices for some of the fundamentals of modern life such as plastic and rubber are hitting records.
South Korea’s Samyang Foods, the maker of the popular spicy Buldak instant ramen noodles, said a prolonged conflict could lead to a shortage of packaging materials and increase costs.
Ramen noodles are typically sold in packages, cups or bowls, making them heavily reliant on polyethylene terephthalate (PET), one of the world’s most widely used plastics, and also key in packaging for other products from foods to personal care.
Rival South Korean ramen producer Nongshim said it had two to three months of inventory of packaging material and was preparing for the possibility that the war, which began with U.S.-Israeli strikes on Iran on February 28, could continue.
Yonwoo, a container maker for L’Oreal and K-beauty firms including Amorepacific, told Reuters it was scrambling to secure stocks of plastic resin to manufacture the pots used for skincare and cosmetics. It said there was little visibility on the material beyond June.
“The issue isn’t the price – if supply itself isn’t available, then without containers, you simply can’t sell the product,” a company official told Reuters, declining to be named as he was not authorised to speak to the media.
“We are stockpiling supplies, but beyond that, we don’t really have any substantial measures in place; we’re simply hoping that the situation would be resolved by May.”
The war has triggered fuel shortages around the globe and businesses from airlines to supermarkets and used car dealers are grappling with challenges including rising costs, weakening demand and disrupted supply chains.
In Japan, department store operator Takashimaya said if the crisis persisted there was a possibility that price increases and supply concerns could spread to clothing and household appliances.
Underscoring the scale of the impact, fans of Japan’s Wasabeef crisps panicked this month after manufacturer Yamayoshi Seika halted production, blaming a shortage of the heavy oil used for the boilers that heat the oil to fry the snacks.
RISING COSTS OF RAW MATERIALS TAKE TOLL
China produces close to half the world’s synthetic rubber and shortages of the naphtha needed to make it are flowing down the supply chain, forcing makers of goods such as tyres and gloves to consider raising prices or shift to natural rubber.
China’s output is set to fall by about a third in April due to the war, according to Xinhua Jing, an analyst at SCI.
Tyremaker Michelin told Reuters its supply chain teams were “fully mobilised” and the company was managing and adjusting deliveries to honour its contracts “as much as possible.”
In India, the war has already made bottled water more expensive thanks to surging prices of plastic bottles and caps, while global brewers operating there have warned of price hikes and supply disruptions due to a shortage of gas.
The high oil price and supply chain shocks are also being felt in China’s southern manufacturing hub of Dongguan.
Liu Chaonan, whose toy company supplies the likes of U.S. retailer Walmart, said soaring raw materials costs were taking a toll.
“The situation in Iran is having a very significant impact on our toy industry,” Liu, who employs more than 150 people, told Reuters. “We will likely make price adjustments when quoting new products.”
Higher crude prices feed directly into retail fuel prices, raising the cost of petrol, diesel, aviation fuel, cooking gas, and business and manufacturing operations worldwide.
SUPPLY CONCERNS TRIGGER PANIC BUYING
Dominic Desmarais, chief solutions officer at Liya Solutions, which connects companies with suppliers in China making everything from furniture to titanium products, said the price of anything made from petroleum was rising.
“We buy a lot of expandable polystyrene from Taiwan, and the prices went up 35%, but our client still bought about 500 tonnes, and they didn’t argue on the price, they just want supply,” he said.
Among consumers, panic has already set in, leading to hoarding of goods such as rubbish bags, with South Korean supermarkets reporting shortages and limiting purchases.
South Korean student Ryu June-ho, 24, this week snapped up bin bags as well as ramen noodles.
“I was worried that garbage bags would get more expensive, so I bought ten 20-litre ones. I also bought lots of ramen … because the cost of plastic packaging probably accounts for a big part of the product’s price.”
(Reporting By Hyunjoo Jin, Minwoo Park, Daewoung Kim and Heejin Kim in Seoul, Sophie Yu and Lewis Jackson in Beijing, Sam Nussey and Kentaro Okasaka in Tokyo, Casey Hall in Shanghai, Aditya Kalra in Delhi, Ruth Chai in Singapore, Sam Li in Beijing; Writing by Anne Marie Roantree; Editing by Kate Mayberry)
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