The effects of Hurricane Harvey that hit the states of Texas and then Louisiana are yet to be fully assessed. This greatest flood producing event in history, not only caused a tragic loss of human lives but caused still immeasurable material damage. From ruined households to heavy commercial and industrial caused by the wind, floods, and landfall.
One of the potential economic crisis that can arise due to damaging hurricane is the rise in prices of all Plastic products, even their shortage due to the fact that the Texas production of ethylene, the key chemical in the making of almost all plastic products had to be shut down, and it will be months before it can be restarted.
Most of the US production of ethylene is located in Texas
Ethylene is a chemical of which practically every plastic product is made of. It is used in producing polyethylene, considered as the most common plastic in the world. This plastic element can be found in practically any product we currently use - from cars to clothing and medical and technical devices.
According to the data gathered by "Independent Chemical Information Service" (ICIS) since August 21, approximately 55% of Texas ethylene capacity is not in use because it is mostly concentrated in the area around Huston. This actually represents 37% of the complete US ethylene capacity. Further data shows that the total US capacity of propylene is down by 23%, Polyethylene 26%, polypropylene 25% and benzene 31%.
All these elements are key in the production of practically all plastic products.
The effects are yet to be assessed
The full effect of the havoc Hurricane Harvey has caused is yet to be assessed, including to the petrochemical industry, not only in the US but globally. The estimates when the production of ethylene and other essential products range from a few weeks to a few months, with full production not estimated to return until November.
At the moment, petrochemical giants like ExxonMobil and Shell are primarily focusing on the well-being of their employees and others. Dow Chemical has, for example, pledged $1 million for immediate relief and recovery efforts. While it is relatively easy to re-start the petrochemical facilities if they are not shut down completely, it is the other factors like the recovery of the transportation infrastructure that can complicate matters.
The experts like Kevin Mc Carthy from Vertical Research Partners say that they "haven’t seen anything quite like it in our 18 years of following chemical stocks on Wall Street.” Their key prediction at the moment is the imminent rise in prices of plastic products, possibly even their shortage, all because Texas has such a major role in the production of ethylene. This opinion is shared by analysts such as Chirag Kothari from Nextant consultants and Hassan Ahmed, an analyst at Alembic Global Advisors. What is certain though is that the full effects of Hurricane Harry are yet to be felt.
