I started in the chemical industry in 1988. Anyone long enough in the tooth to remember that time (pre-email, about 50% of companies had fax machines) will recall the product shortage that ruled the day was Titanium DiOxide (Tio2). List price at that time for the standard Dupont R-900 grade was about $1.00/lb, and the first deal I ever put together was with a great guy, still in the business – Warren P. We bought a truckload (40,000 lbs) at $1.50/lb FOB and sold it at $1.60/lb FOB to a company called GoldBond Products in Sumter, SC. There were two very nice ladies in the purchasing department that must have felt sorry for me or something – I really didn’t know what I was doing at the time, but they placed a purchase order nonetheless. At that stage of my professional life (fresh out of the Army, 27 years old and about 4 months in the business), I didn’t have $60,000 to fund the deal; Warren funded it, and we split the $0.10/lb profit. About 30 days later when GoldBond paid Warren, he sent me a check for $2,000. This was the greatest day of my life to that point. I was hooked.
It seemed like that shortage lasted many months. If you are under 35 years old, it must be impossible to imagine not having email to transfer offers and specs/analysis by attachment. In the late ‘80’s the fax machine was just reaching the ‘tipping point’ of adoption. The physical act of communicating information to suppliers and potential buyers was comparatively done at a snail’s pace and the entire process of conducting commerce exponentially less efficient than it is today. To a chemical trader, ‘those were the days’. No really, they were. I talk to some old timers in the business about the Oil Shortages of 1973 (arguably the year that the chemical trading business started), and they talk of those shortages as the true ‘gold rush’ of our industry.
Since that time I’ve seen numerous shortages with various lifespans and degrees. The Chinese ‘cartel’ of Ascorbic Acid (aka Vitamin C) manufacturers appear to create a shortage every 3-5 years, moving prices from $3/kg to over $20/kg in one case. That’s fun on the way up, and can be very dangerous on the way back down to $3. The phrase ‘don’t try and catch a falling knife’ is in play on shortages such as these. It took weeks (months?) for the price to rise 6-fold, and literally one week for the price to drop a similar amount. Multiplying the dollar amount times 20,000 kgs per container – a lot of money can be made or lost. I know of one company that actually made over $100,000 on each of two containers (as the price rose), and having not followed the age old principal of ‘take your first loss, it’s the best loss’ held on too long the final container and literally gave back all the profit made on the first two. A loss of $200,000+ on one container! It’s only money, right?
Other shortages have included products like Methyl Ethyl Ketone (MEK);this product used as a cleaning solvent in high end electronics became very short after the horrible aftermath of the Japanese Tsunami several years ago. An MEK plant in Japan (designed specifically to service the high tech industry in Japan) was knocked out and the likes of Sony, Sharp, etc… were forced to buy MEK on the open global spot market. That shortage lasted about 3-4 weeks.
Purified IsoPhthalic Acid:
Fast forward to just a few weeks ago when the major USA manufacturer of Purified IsoPhthalic Acid (PIA) announced o/a March 1 that their plant would be out of commission until mid-late April at the earliest. Common sense thinking would assume this shortage would last several weeks. ‘Back in the day’ we would be chomping at the bit, salivating over the import opportunities that could come from Taiwan, Korea, etc… for PIA. Reality is that this ‘shortage’ literally lasted 2-3 days for the spot market to be open and shut. Emails flew around the world, international text messaging ramped up, and new communication Apps like ‘WhatsApp’ allowed instantaneous communication from mobile device to mobile device transcending former barriers such as time zones. Users of PIA placed orders in 2-3 days to cover the next 6-8 weeks of shipments (including one container I know of that was air freighted from Korea!), and the ‘shortage’ was over.
As anyone who participates in these shortages knows, it can be alot of ‘fun’, and very rewarding to assist company’s & customers who need to find product to keep their plants up and running. Those same people will recognize the many sleepless nights of owning product at well over market prices, and the fear of selling in a market that is ‘the falling knife’.
Technology continues to change and evolve our industry. It’s exciting; fast and furious, and creates the need for the occasional ‘all-nighter’. And until the next ‘shortage’, its back to the daily grind…chemical distribution the old fashioned way. Bags, drums, pallets and truckloads at a time.
Share your ‘shortage’ stories!
What TR didn’t add about the TiO2 deal mentioned above was the fact that GoldBond wanted to see a sample of what we were going to sell them. TR was in Seattle and he cooked this deal with GoldBond. I was in Charlotte and had the sample in my office. GoldBond’s corporate offices were across the street. I walked the sample over and delivered it for Tony!
Back in 2010 we had a government that was very active in their policies and decided to put forward a rebate for insulating homes. The idea being that power consumption would be reduced if every house in the country was insulated. It effectively made insulation free. Door to door businesses popped up overnight to service the market and sell in cheap insulation.
Borax and Boric Acid were being used as fire retardants in these insulation products and demand skyrocket overnight. We couldn’t ship the containers fast enough to keep up with demand. Anyone who was sitting on large quantities of these products at the time made a killing. The price tripled fairly quickly. We couldn’t bring in enough.
Then 6 months later a couple of young guys were electrocuted in separate accidents. Pop up businesses were putting untrained guys into ceilings. It wasn’t hard to get 50% more than minimum wage working in installation so there were plenty of people out there doing it. The government copped plenty of flack for the deaths. The rebate was pulled as quickly as it was put in.
We were left with hundreds of tonnes of committed stock and calls came in from businesses wanting to cancel blanket orders. With no secondary market for those products there was little we could do but hold these businesses to their contracts. It drove a couple of those companies to the wall and some who had been in business successfully for decades were forced into insolvency.
Anyone who had been in the market for insulation had been sold in that 6 month period, so there was little market left to sell to afterward.
I still see shortages happen on occasion though, on an individual basis – perhaps someone within a company forgets to place a PO, or a change in production requires a fast reaction (this often happens in Mining, Oil and Gas sectors) – You can make significant profit if you are sitting on the right stock, or you can help someone out and make a customer for life.
Jackson, this is a great story – identifying both the upside and downside of shortages. Thanks for taking the time to share.
With 35+ years in the chemical industry, I lived the ’73 control price & shortages; ’76 shortages including boric acid, & every other shortage since then, sometimes on the seller side, other times on the buyer’s side. One of the major contributors to most shortages, the chemical traders. Check it out with any “old timer” industry person, believe they will concur!
Inverting Tony’s first paragraph phrase, you guys appear to be “short in the tooth” from my perspective: My first year of “true shortages” in this business was 1974 following the Arab Oil Embargo where there were no products that were long. Even sand was short! That was pre fax machine, pre cellphone, and, pre Al Gore (internet). The primary communication devices were a postage stamp and a rotary dial telephone. In ’74, it didn’t matter if you were needing organic chemicals, inorganic chemicals, or some combination thereof; it was ALL short.
We have some tight supply situations today, but nothing like the global chemical insanity of ’74 and ’75. Many people retired on what they made in ’74 after being in the business only a few years.
In our business, we are trying to manage tight supply challenges on certain inorganic heavy metal salts, but for the most part these are not what I would characterize as shortages as much as very tight supply. When these materials are out globally, they are in a shortage, but when they are regionally out, that’s more balance and logistically driven snug supply to my thinking. If I can get the same material without any problem in another country, then it’s not really short; its just snug here.
The internet tends to prevent the runaway pricing of the past in times of short and long commodity chemicals. Some bonehead somewhere will offer it and deliver it for a song to your customer because he has it and is not savvy, or, he’s selling inferior material and looking to just get out of whatever but the global communication network has equalized a lot of these runaway markets.
In any case, 40 years we saw painful shortages on everything that resulted in 4-6 hour gas lines just to fill your car with a $20 limit at crazy hyped up prices like $0.50/gallon for regular; and, insane prices for everything chemical if you could even find it, and, some very unhappy buyers and very happy sellers. Lets hope that doesn’t come back around but this little hiccup is a good reminder that we are in the commodity business and it can turn quickly if precipitated by a major political event somewhere on this blue marble that we all live on.
Rob, this is a great post and comment on shortages. Thanks for taking the time!
This material shortage has player its role in Oil and Gas sector during 2011-12 particularly for Guar gum . Big player feared shortage of material and placed order to supplier beyond their capacity manufacturing and raw material ,price shoot up from US $ 0.7 per pound to 10-11 per pound . breaking all records and that to for period of 6-8 months .and agian after 18 months its back to US $1.2 per pound . top of this the company had inventory bought at 10-12 when prices is US $1.5 per pound . classics case of fear of shortage .