Fire halts Huntsman olefin work

Salt Lake-based Huntsman Corp. said damage from an April 29 explosion and fire at a chemical plant in Port Arthur, Texas, may halt its olefin output for several months.

The Port Arthur plant can produce 1.4 billion pounds of ethylene a year, or 30 percent of Huntsman's global production capacity, the company said Monday in a statement. Ethylene is a key ingredient in polyethylene plastic. Fires continued burning at the plant Monday, the U.S. Chemical Safety Board said.

The fire will shut about 1.8 percent of North American ethylene capacity, estimates Banc of America Securities analyst Kevin McCarthy. Concern for a prolonged supply reduction sent shares of Nova Chemicals up 12 percent, the biggest gain in six years. Dow Chemical Co. and Lyondell Chemical Corp. also rose.

"Huntsman's fire should strengthen the ethylene market," McCarthy said Monday in a note to clients. "It bodes well for competitors." McCarthy, the top-rated chemicals analysts in a Wall Street Journal survey, doesn't rate Huntsman shares. He recommends buying Dow and Lyondell and is neutral on Nova.

Shares of Huntsman, which is run from Salt Lake City and Houston, fell 67 cents, or 3.4 percent, to close at $18.98 Monday on the New York Stock Exchange, the biggest drop since April 6. The stock has dropped 9.8 percent in the past 12 months. Huntsman is the fifth-largest U.S. chemical producer.

Products from the Port Arthur plant generated about $25 million of first-quarter profit for Huntsman before interest, taxes, depreciation and amortization, or Ebitda. That's less than 10 percent of the company's total. UBS Securities analyst Jeffrey Cianci estimated the outage will reduce Ebitda by $60 million. He cut his 2006 profit estimate by 40 cents a share.

Merrill Lynch & Co. analyst Don Carson, the top-rated commodity chemical analyst in an Institutional Investor survey, raised his rating on Calgary-based Nova to "neutral" from "sell," because he said the outage will give producers greater ability to raise prices for polyethylene this month.

Nova, Canada's largest chemical maker, jumped $3.59 to $33.25, the biggest percentage gain since Feb. 15, 2000.

Dow, based in Midland, Mich., climbed $1.07, or 2.6 percent, to $41.68. Houston-based Lyondell, the biggest North American ethylene producer, gained $1.26, or 5.2 percent, to $25.36.

"The Huntsman fire will likely spark heavier derivative buying from converters, who have still not restocked inventory since last year's torrid hurricane season," Carson said in the note. "The Huntsman outage is also positive for other major North American ethylene producers Dow and Lyondell."