Hurricane Harvey Hits Here?

Hurricane Harvey hit the Gulf Coast with a vengeance on August 25th, delivering the largest single storm amount of rainfall in the continental USA, ever. We have all seen the devastation and misery inflicted upon the residents of southeast Texas, and our hearts go out to them. If you wish to help fellow Americans in need, make sure you do so effectively and intelligently. See what Consumer Reports or other sources you trust have to say about giving before you break out your checkbook. But once we get past our sympathies, we have to begin to wonder – Will this disaster have any impact on me, or on my business?

The answer is yes, most definitely.

We are all used to seeing above-average rainfall in parts of the Midwest after a named storm system inflicts its mayhem in the gulf area, then meanders along a northeasterly path toward us. But we should expect more than just rain to fall out as a result of Harvey. The Gulf Coast holds about a third of the nation’s refining capacity, and serves as a critically important nexus of America’s “energy superhighway system.” In normal times, crude comes in, refined products go out, either to international markets or other regions of the USA.

But with port operations interrupted, a situation that the US Coast Guard says may take weeks to resolve before shipping channels are safe for large ships and tankers, crude oil destined for import to the USA has no way to enter via its most common port of entry. Therefore, we will see a temporary glut of oil available to the global markets, even though we might face a shortfall in the US due to interrupted infrastructure. More importantly, disrupted refinery operations will generate upward pressure on refined product pricing nationwide, most immediately impacting fuel and plastic resin pricing.

Resin producers have been building a stockpile, which should shield buyers from supply interruptions, but they have been pushing price increases at the same time. Expect more emphasis on price increases, regardless of inventories, resulting from constrained production due to Harvey. Coupled with resin producer maintenance shutdowns, this could be a strong supporting element for producers to keep prices elevated for a significant period.

Likewise, fuel prices are already jumping in the Midwest as a result of Harvey’s impact in the Gulf. So long as gulf region refining capacity remains offline, and pipelines from the Gulf area to other regions of the country operate under capacity, anticipate fuel costs to remain elevated and transportation companies to perhaps begin leveling fuel surcharges.

In summary…

  • Harvey will impact crude and refined petroleum products for a significant, but unknown period
  • Crude Oil and Refined Product pricing will be thrown out of sync, depressing global Crude Oil pricing but pushing refined product pricing higher in the USA
  • Expect costs for transportation to increase, and don’t be surprised if suppliers attempt freight surcharges due to increasing fuel prices
  • Monitor refining capacity nationally, and refining capacity utilization regionally to be prepared to push back on surcharge attempts lasting longer than might be justified
  • Harvey will embolden plastic resin producers to push for increased pricing, and will sustain their efforts

What can you do?

  • Bookmark this blog to stay informed (press CTRL + D for Windows users or Command + D for Mac users)
  • Follow MAGNET on Linkedin and Twitter
  • Reach out to john.hattery@magnetwork.org if you want to discuss your organization’s procurement, product, operations, workforce, or other challenges

 

Print
Posted by John Hattery in Trends

Most Recent

Thank a Librarian

October 13, 2017 by Sam Wasylyshyn

During the early 1930s, IBM developed the first modern accounting machine designed for the financial sector. However, the banks weren’t buying the IBM machines; in fact, they were just trying to stay in business, and no one was investing in new equipment. The accounting technology was new, and people didn’t understand its potential yet (thus a reluctance to invest in it). Even with this dismal outlook, IBM found an unexpected solution: libraries. Unlike the banks, libraries during the early days of the New Deal era had money to invest. After the famed New York Public Library bought an accounting machine, others followed suit, leading to more than 100 purchases by libraries across the country. Once the economy regained momentum after World War II, the business community once again had the money to invest and recognized the sheer importance of computing technology. IBM redesigned their machines to help companies complete their payroll, and within a few years, IBM became a leader in the computer industry. Have you ever experienced an unexpected occurrence similar to IBM? Was in how the product was made or how the product was sold to the market? This story covers one source of innovation known as “unexpected

Reflecting on Resins

October 03, 2017 by John Hattery

The market for plastics and resins continues to be somewhat confusing, operating under very different market conditions as compared to other raw material commodities. Though resin producers have learned the value of managing capacity to stabilize (and potentially to increase margins), the way they’ve been building up inventories is puzzling, even in the face of steady and increasing demand. The fact that producers were pushing for price increases as of August indicates that they anticipate increasing demand, decreasing capacity, or a combination of both, and have some confidence of realizing higher prices for their products. After Hurricane Harvey, demands for increased pricing have only strengthened as stockpiles are drawn down and infrastructure restarts are slower than hoped for. What can you do to keep up with these continually changing trends? Be responsible for your own defense. The best defense for a small manufacturer is to have multiple sources of resin pre-validated in your manufacturing process and pre-approved by your customers. This allows you to seamlessly shift from one supplier to another if faced with an unpalatable pricing demand. Be prepared to play suppliers against each other to ensure they remain in a reasonable margin band as market conditions vary, and

Metal Musings

September 26, 2017 by John Hattery

For the past few years, manufacturers have enjoyed declining and advantageous input costs on most commodity industrial metals – copper, zinc, aluminum, iron, tin, steel, etc. The party has most definitely come to an end. As the global economy heats up, demand for industrial metals to supply the manufacturing sector in all markets likewise increases, resulting in a steady upward pressure on raw material input costs. Barring another major economic or geopolitical crisis, we have likely seen the last of a softening commodity market for quite a while, and must prepare for a period of increasing cost pressures. Manufacturers in the USA, particularly small manufacturing enterprises, need to be aware and be taking proactive steps to prevent margin erosion due to negative purchase price variance resulting from these commodity pressures. Know what your metal purchases should cost - be better informed than the salesman across the table from you. Hopefully as a manufacturer you haven’t been a passive, price-taking buyer, or a seller allowing larger customers to dictate how material cost inputs are to be dealt with. Hopefully, you already have indexing agreements in place with both suppliers and customers. Most importantly with suppliers, because without such agreements you have