Scrap First Steel Impact from Storms
By Dan Markham
on Jan 3, 2018
Economic impact from Hurricane Harvey alone could exceed Katrina, though it will also spur demand for metals products.
The series of storms that ravaged the United States over the late summer months will have a tremendous effect on the U.S. economy in multiple ways.
In late August, Texas and Louisiana were wracked by Hurricane Harvey, which dumped an estimated 30 inches of rainfall on 6.9 million people, while 11,000 people saw more than 50 inches over the course of seven days, reports the National Oceanic and Atmospheric Administration. More than 30,000 people were displaced, and more than 200,000 homes were damaged or destroyed.
Two weeks later, Hurricane Maria ripped through Florida and up the Southeast coast, delivering record sustained winds over the course of two days. In the Florida Keys alone, more than 25 percent of buildings were destroyed, while 65 percent received significant damage.
Finally, Hurricane Maria hammered the islands of Puerto Rico and the U.S. Virgin Island of St. Croix. Puerto Rico’s transportation, agriculture, communication and energy infrastructure were all devastated in the storm, and will take considerable time to rebuild, the NOAA reports.
Just how costly these storms will be remains to be seen, though some peg Harvey alone to surpass Hurricane Katrina as the most expensive in U.S. history. The NOAA will deliver its initial estimate on the cost this quarter.
Some concrete economic effects are already being felt. Argus Metals reports that Hurricane Harvey did damage to more than 350,000 vehicles, just in Southeast Texas. To date, just short of 300,000 auto insurance claims have been filed, with the remaining 50,000 vehicles being either underinsured or uninsured completely.
Of the claims, only 30 percent of those vehicles will be repaired. The rest are in the process of landing at the various scrap yards in the Houston area.
The unexpected demand for more than 200,000 new vehicles in just one area of the country, and not the only area hit by storms this season, will undoubtedly boost the North American auto market in the months to come. It’s possible this jolt could be enough to reverse the declining trend that has been in place throughout 2017.
The more immediate effect, Argus reports, is on the ferrous scrap market, which has been inundated with this unexpected supply of new material. Argus reports the shredded ferrous scrap market in Houston will grow by more than 26,000 tons over the next six to nine months.
“In October, market participants expect the surplus supply from the hurricane to drive shredded scrap prices in Texas down by as much as $30 per gross ton. Without a strong pick-up in export demand, pressure on shred prices is expected to persist into 2018 as the overhang of shredded material lingers,” Argus reports.
Major storms have two phases, says BBVA Research. At the outset, there is a hit to capital stock in terms of housing, commercial property, infrastructure and more, resulting in a loss of wealth. But over time, provided insurance is available, the storms result in increased business activity driven by replacement demands, which tends to level off the net effects of the storms.
The metals industry, for example, will see a significant boost in demand for products once reconstruction begins. Following Harvey, IHS Senior Principal Economist John Anton revised his projection for steel prices, believing the storm’s immediate impact would keep carbon prices from falling in the fourth quarter, as he originally anticipated.
“If you have to replace a lot of flat steel, that’s going to put price up. And there’s going to be a lot of rebuilding in Houston.”