The holiday season is in full swing, and while most of us already have already started our celebration of the traditional American holidays, I would like to offer one more date we should observe with some manner of festival rites.
Nov. 30 marks the official end of hurricane season for this year.
I am pretty sure that the hurricanes we experienced this past season will be remembered for a long time. It is impossible to put an economic value on the personal pain and loss caused by these catastrophic storms; nevertheless, the measurable economic impact was significant. The effects that Harvey, Irma and Maria had on the plastics industry, in particular, became clearer with the recent release of the economic data from August and September.
Consider the monthly data for U.S. industrial production of plastics materials and resin. This indicator is in the form of a seasonally adjusted index (2012=100), and it is compiled and reported by the Federal Reserve Board.
You will recall that Hurricane Harvey hit Houston in late August. According to this index, there was a sharp decline in resin production in both August and September. To be more precise, the output of resins decreased by 6 percent in August when compared with the previous year, and for September the decline was 10 percent. This pushed U.S. resin production to the lowest levels since the Great Recession; however, it came at a time when overall U.S. demand for plastics products was expanding at a rate of about 2 percent.
As one might expect when a market's supply and demand fundamentals are subjected to this kind of shock, there was an increase in the price of resin. According to my Resin Price Index, which I calculate every month using data from the Plastics News resin pricing chart, the volume-weighted average resin price increased about 10 percent when compared with its pre-storm level.
I will not go too far out on a limb with predictions about what this means for the future trends in production levels and prices. This market is susceptible to a number of unforeseeable factors, both natural and man made. However, the recent price action does offer some clues about the current state of the market, and it makes sense for compounders and processors who use these materials to take advantage of this information whenever possible.