A warning from Goldman analysts highlights the impact of the petrochemical supply shock in Asia, which is now causing a significant increase in costs of goods sold (COGS) across various industries in the region. This shock is forcing manufacturers, such as sofa makers and apparel producers, to reduce production levels or even shut down plants due to the soaring costs of petrochemical-related materials like plastics.
In a note titled “Petrochemical Supply Shock Begins Idling Asian Factories,” the unfolding crisis was detailed earlier this week.
Goldman analyst Georgina Fraser emphasized that key raw materials like PTA, Caprolactam, polyester, and polyamide have seen a significant average price increase of 29%, resulting in a COGS rise of approximately 17%. This surge in input costs is already impacting industries with thin profit margins, potentially leading to production halts.
Fraser identified the most affected industries by the COGS shock:
- Furniture & bedding → costs up ~21%
- Consumer goods → 20%
- Healthcare equipment → ~19%
- Textiles/apparel → ~17%
She cautioned that even if the conflict causing the supply chain disruption is resolved, the impact on production lines and plant operations is already set in motion. Recent reports indicate that textile production in India has been limited to a single 12-hour shift per day.
Overall, the situation suggests that supply-chain disruptions in Asia could escalate, potentially leading to shortages of a wide range of consumer goods produced in the region. This underscores the urgent need for proactive measures to address the challenges posed by the COGS shock.