Hurricane Harvey Economic Risks Increase As Cost Estimates Soar

China, Company Strategy, Economics, Fibre Intermediates, Oil & Gas, Olefins, Polyolefins, Styrenics, US

1024px-Texas_Army_National_Guard_Hurricane_Harvey_ResponseBy John Richardson

AGAIN, it’s the human cost that of course matters the most – and let’s hope it doesn’t keep on climbing. As of earlier today, the number of lives lost as a result of Hurricane Harvey had risen to 44. My sympathies and thoughts go out to all the families involved.

But chemicals and other companies have to also think about the economic impact. The top line is that according to Accuweather, the US weather forecasting service, the cost of Hurricane Harvey will “reach $190 billion, or one percent of the nation’s gross domestic product (GDP), countering the expected growth in the economy for the rest of this year”. This would make it the most costly natural disaster in US history.

What is also crucial to grasp is the very possibly flawed economic logic behind widespread arguments that Hurricane Harvey will in the long run actually boost the US economy. The thinking goes that all the rebuilding work will eventually add to GDP. But as economist Caroline Baum writes in this article, quoting a 19th century French economist:

In Chapter I, “The Broken Window,” Bastiat relates the story of a shopkeeper, whose son accidentally breaks a store window. The shopkeeper has to pay six francs to the glazier to replace it. The glazier now has six francs to spend on something else. And so on.

What is unseen is what the shopkeeper would have done with the six francs if he didn’t have to replace the window.

She also makes what seems to me a solid argument that a demand-side response to the disaster might actually make things worse. If the Fed were to say delay its next interest-rate rise this might add to inflationary pressures created by the supply shortages resulting from the hurricane.  One of the most notable supply shortages is in gasoline as one third of US refining capacity has been affected by Hurricane Harvey.

The contagion effect

I really hope I am wrong on this, but, as I discussed on Wednesday, companies need to plan for a contagion effect. You need to build scenarios where the following occurs:

  • The economic damage caused by Hurricane Harvey combines with a failure by the Trump administration to achieve meaningful tax reform and infrastructure spending by the end of this year. The understandable distraction of having to deal with Hurricane Harvey helps derail the White House efforts. The end-result is that overvalued global stock markets suffer steep declines.
  • This occurs as consensus is reached that China has entered a new lending slowdown. China’s credit cycles have a huge bearing on global economic growth. The data from China is already telling us that Beijing has launched a major new cycle of credit tightening. This adds to equity-market sell-offs. Oil markets, which have already weakened because of Hurricane Harvey, decline much further as China is the world’s most important source of incremental demand growth.

Chemicals and polymers pricing has of course already started to go because of the short term because of the loss of US Gulf Coast supply.  As ICIS news writes:

Harvey and its aftermath will take out an estimated 46% of total US ethylene capacity and 36% of polyethylene (PE) capacity offline for an uncertain period of time, according to Kevin McCarthy, analyst at Vertical Research.

Asian pricing of styrene monomer and mono-ethylene has surged on anticipation of tighter supply resulting from the hurricane.

Specifically in the China PE market this week, sentiment and so pricing has picked up on the anticipation that new US PE supply will be delayed by the hurricane. It had been though that supply from the new cracker complexes would start arriving in China in Q4 this year. But now the expectation is that this will be pushed back into 2018.

But higher chemicals pricing might well not be sustainable if my worst-case scenario comes true: Hurricane Harvey being the catalyst for a new global recession.

As I said, I very much hope I am wrong. But putting the right planning and systems in place that take into account this worst-case scenario would, I think, make a lot of sense for chemicals companies.


Hurricane Harvey: The Case For Major Negative Economic Consequences


By John Richardson THE most important thing here is the human cost. Thirty lives...

Learn more

China, China And China: The Three Drivers Of Global Styrene


By John Richardson THE DATA on global polyethylene (PE) and polypropylene (PP) u...

Learn more
More posts
Plastics rubbish and the developing world: Lost petrochemicals demand and the new service-led approach

By John Richardson IT WAS billed as a liberating product, something that brought a little luxury to ...

Little prospects of genuine US and China deal leave US petrochemicals exports very vulnerable

As always, this blog post expresses my own personal views and these are not the views of ICIS. Thank...

The new China and the rise of the Millennials transform the petrochemicals business model

By John Richardson ANYONE who has anything to do with the petrochemicals industry or anything to do ...

Global manufacturing slowdown: Turn to China’s polypropylene market for your explanation

By John Richardson THEY SADLY still don’t get it. All the clamour yesterday was about declinin...

China PE overstocking rises to more than 1m tonnes as exporters continue to flood the market

By John Richardson CHINA is heading for another good year of PE demand growth with estimates from se...

If Strait of Hormuz closed down: Effect on petrochemicals exports

By John Richardson NEITHER SIDE seems to want a war but at febrile times like this miscalculations c...

US petrochemicals export exposure grows at the wrong time in history

As always, the views in this blog post are my own and do not reflect the views of ICIS. Thank you By...

Further collapse in China auto sales underlines radical change in petrochemicals business model

By John Richardson HAVE FEEDSTOCK will build has been the route to success for many years in the pet...


Market Intelligence

ICIS provides market intelligence that help businesses in the energy, petrochemical and fertilizer industries.

Learn more


Across the globe, ICIS consultants provide detailed analysis and forecasting for the petrochemical, energy and fertilizer markets.

Learn more

Specialist Services

Find out more about how our specialist consulting services, events, conferences and training courses can help your teams.

Learn more

ICIS Insight

From our news service to our thought-leadership content, ICIS experts bring you the latest news and insight, when you need it.

Learn more