Hurricanes Disrupt Scrap Supply

The bigger the disaster, the bigger its effects on the scrap industry.

When homes are destroyed, buildings damaged and automobiles wrecked, massive amounts of materials are extracted and the demand for rebuilding supplies surges. Typically, the demand for materials exceeds the supply extracted from the damaged areas.

The U.S. scrap industry has been greatly impacted in recent months as two major hurricanes have hit southern states. Hurricane Harvey hit Texas and surrounding states. Then Hurricane Irma struck Florida and Georgia.

The extensive damage wrought by the hurricanes caused large shifts in supply and demand for materials, like previous storms have done. But the economic impact of the storms was compounded by where they hit.

Hurricane Harvey was particularly powerful in Houston, whose port handled roughly 68% of Gulf Coast container traffic in 2016, according to MetalMiner. Since January 2017, 40% of iron and steel pipe and tube imports had come into the Port of Houston. Container ships were diverted and trade was effected when the port was closed during the storm.

Also, because it struck Houston, in addition to its impact on logistics Hurricane Harvey had an outsized effect on the rebuilding process, which usually drives the scrap economy after a disaster. Typically, when a major storm hits a highly populated area the first grades of scrap to come out are light iron and shreddables, scrap dealers stated in an S&P Global Platt’s article on the storm’s impact on steel scrap. Then come automobiles, non-ferrous grade scrap, and heavy steel.

Despite the large volume of resources that are extracted from the storm, there is still a deficit.  More materials are needed to rebuild than are being extracted from the damage. This combined with the fact that Houston has been the largest market for newly constructed homes means that the demand for materials will surge once rebuilding begins.

Scrap prices were already projected to be bullish in October. With increasing demand due to the large amount of materials that will be needed for rebuilding , the impact of the recent hurricanes should support these projections.