Recovery from hurricanes for raw material companies taking time

Hurricane damage in the Gulf of Mexico is hurting financial results for raw materials companies long after the end of the storm season but the pain should subside before the next season starts, experts say.

Basic materials heavyweights such as oil major BP and No 2 US chemical maker DuPont said this week that damage from Hurricanes Katrina and Rita and related production issues would cut into near-term earnings.

The warnings came after the world's No 1 aluminium producer, Alcoa, blamed the storms and higher raw material costs for its profit shortfall.

The storms' aftermath is one of the few setbacks this financial year for raw materials companies, which across the board are enjoying near-record prices for commodities ranging from aluminium to chemicals.

"We might see a reduction in earnings for the fourth quarter, but I expect that to go right back to higher earnings in the first quarter because markets for chemicals and petrochemicals are robust," said Ken Stern, managing director of FTI Consulting in New York.

Companies that make aluminium, chemicals, paper and pharmaceuticals could feel pain through March from higher energy costs, said Michael Gordon, president and founder of New York-based consultants ConsumerPowerline.

For the fourth quarter, chemicals companies may be hard-pressed to pass the extra costs on to buyers.

"On the one hand, the cost of raw materials and energy are going up, and on the other hand customers like Wal-Mart and GE ... are reluctant to accept price increases," said Stern.

He said many facilities still closed by the storms could be down until the second quarter of this year.

On the aluminium front, Alcoa's 16 per cent decline in fourth-quarter earnings this week, due in part to hurricane damage, took Wall Street by surprise. But analysts still expect earnings to rise this quarter as aluminium demand remains strong and prices are at 17-year highs.

For energy companies, soaring oil and gas prices are expected to help earnings easily surpass storm damage.

But the costs are still nagging. BP warned this week that the shutdown of the Texas City refinery and hurricane damage to rigs cost it US$1 billion in lost profit. BP would not say when the refinery, the nation's third largest, would return, but sources said it would restart in March.

BP's enormous Thunder Horse deepwater platform was damaged after Katrina forced workers to evacuate. It was supposed to start producing oil and gas in late 2005. Initial production has now been pushed back to late 2006.

Another oil major, Royal Dutch Shell, has said production from its Katrina-damaged Mars platform in the Gulf may not resume until the second half of 2006, but rival ConocoPhillips expects full recovery at its Alliance plant in Louisiana to occur at the end of the first quarter.

One analyst said that recovery in oil, gas and chemical production means the storm pain is almost "ancient history".

"I had to laugh at DuPont's comments," said Richard Leader, analyst at Burnham Securities in Houston.

"I think a lot of management sits around and says, 'Well, we didn't do our job this quarter, we're going to miss the numbers - what can we do? Well, let's blame the hurricane'."

- REUTERS