Hurricane Sandy may cause spike in US construction

09 November 2012 11:33  [Source: ICB]

Hurricane Sandy may cause a spike in the construction industry as the US begins recovering from the storm that hit the northeast.

The housing market is a key downstream consumer sector for the US chemicals industry, driving demand for a wide variety of chemicals, resins and derivative products such as plastic pipe, insulation, paints and coatings, adhesives, roofing materials and synthetic fibres, among many others.

Hurricane Sandy Damage Rex Features

Rex Features

Construction is expected to get a mild boost from Sandy

The American Chemistry Council (ACC) estimates that each new single-family home built represents some $15,000 worth of chemicals and derivatives used in the structure or in production of component materials.

For non-residential construction, every $1,000 spent generates $160-230 worth of consumable chemicals and derivatives, according to the ACC.

Sandy caused $10bn-20bn in damage and an additional $30bn-50bn in total economic losses, according to post-landfall estimates made by EQECAT, a risk assessment firm. As a result of the damage, demands for labour and supplies will spike with the need for immediate repairs, it said.

SHORT-TERM EFFECTS

The cost of supply labour, including commute costs and increased temporary housing costs, will go up as well, EQECAT said. Still, some US economists said the spike in the construction industry would only be temporary with overall short-term effects.

Workers will be needed for rebuilding and repairing projects, but many will be diverted from other tasks, either with the same employer or others, said Ken Simonson, chief economist with the Association of General Contractors (AGC) of America.

"Meanwhile, whatever construction might have occurred on the high-rise with the damaged crane or elsewhere in the [New York City] subway system is likely to lose as many workers as the emergency projects add," Simonson said.

Prices for building materials such as asphalt roofing may increase for a few weeks, but they will come down as new supplies are shipped in and production is increased if needed, said Bernard Markstein, US chief economist at Reed Construction Data (RCD).

Some contractors will increase their charges beyond their increases in labour and materials costs, but most will look to the long term to keep their relationships with customers and their reputations solid, Markstein added.

"The result will be a waiting period for repairs determined largely by the severity of the damage," Markstein said. "Those who are willing to pay more can always move to the front of the line."

Sandy also had a direct effect on the chemical industry as several companies shut down refineries as a precautionary measure before the storm.

Phillips 66 shut down its 238,000 bbl/day Bayway refinery in Linden, New Jersey and is expected to restart production in mid-late November. It resumed operations at its terminal in Riverhead, New York. In New Jersey, the Linden terminal was expected to be fully operational on 11 November, and the Tremley Point terminal remains shut.

NuStar Energy shut down its 74,000 bbl/day in Paulsboro refinery in New Jersey on 29 October but reopened it the next day. The 70,000 bbl/day Hess refinery in Port Reading, New Jersey, also remained shut last week, the US Department of Energy (DoE) said.

In addition, several refineries temporarily reduced rates as a precaution against the storm.

Philadelphia Energy Solutions said its 335,000 bbl/day refinery in Pennsylvania has now returned to normal operations after operating rates had been reduced because of delays in seaborne crude oil deliveries. Philadelphia Energy Solutions is a joint venture between Sunoco and The Carlyle Group.

RETURNING TO NORMAL

Other facilities back to normal capacity include Monroe Energy's 185,000 bbl/day facility in Trainer, Pennsylvania, as well as PBF's two refineries at its 182,000 bbl/day site in Delaware City, Delaware, and 160,000 bbl/day site in Paulsboro, New Jersey, the DoE said.

"What we're finding is for the most part, our chemical sector weathered the storm quite well, thanks to the preparation plans put in place such as shutdowns," said Scott Jensen, a spokesman with the ACC. "Facilities are coming back on line, and the impact was fairly minimal."

The challenge currently facing the chemical industry is restoring transportation to ship and delivery products, Jensen said.

Braskem's 345,000 bbl/day polypropylene (PP) plant in Marcus Hook, Pennsylvania, remains down because of logistics problems caused by Hurricane Sandy, a company spokesperson said.

US polyethylene (PE) producer NOVA Chemical said it is collaborating with both rail suppliers and customers to reroute or free up rail cars that are embargoed or stuck in various places.

"Hurricane Sandy has thrown a real wild card now into what we can think about [demand], certainly for the next several weeks," NOVA CEO Randy Woelfel said.

So far, the storm has killed at least 98 people in the US, according to media reports.

Hurricane Sandy was a Category 1 storm that became the largest tropical system recorded in the Atlantic, measuring more than 900 miles (1,448 km), the National Hurricane Center (NHC) said.

EQECAT said a demand surge is unusual for a Category 1 storm, which has sustained winds of 74-95 miles/hour (119-153 km/hour) under National Hurricane Center classifications.

However, Sandy caused such a magnitude of loss mainly because of the broad wind field that exceeded 1,000 miles (1,609km) and storm surges that reached up to 14 feet (4.3m), EQECAT said.

  • Additional reporting by Bobbie Clark, Michelle Klump and Anna Matherne

By: Tracy Dang
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