The impending strike of Hurricane Rita on the Texas coast poses as much of a risk to chemical output as it does to oil production and refining, analysts say, threatening shortages of plastics and other key products in coming days and weeks.
Credit Suisse First Boston, in a research note Thursday, estimated 72 percent of all U.S. production capacity for ethylene was in the potential strike area of Rita. Ethylene is a crucial component in plastics and plastic manufacture.
Rita is set to arrive while the industry and the region are still suffering from the effects of Hurricane Katrina. Chemical industry experts estimated earlier this month that Katrina shut or cut production at plants responsible for a fifth of the nation's ethylene capacity.
The devastating effects of Katrina on the Gulf of Mexico also pushed natural gas to new record prices. Rita has only made the situation worse, as October natural gas futures rallied in electronic trading to $13.42 per million British thermal units Thursday, which was a new contract high.
Dow Chemical Co. last week called energy prices a "severe threat" to the chemical business, as it said it would seek price increases for all its products. DuPont has also said it would seek price increases.
Rising energy prices have already prompted profit warnings from major metals companies Alcoa Inc. and United States Steel Corp. , and most analysts assume that any company with significant exposure to energy costs faces a similar risk unless they had sufficient hedges in place.
As a precaution for Rita, companies are shutting plants as a protective measure before the storm. Lyondell Chemical Co. has closed all 12 of its plants, most of them chemical, in the region that will potentially be affected when the Category 4 storm makes landfall sometime early Saturday.
