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Damage from a fire that broke out over the weekend at a Huntsman Corp. chemical plant in Port Arthur, Texas, may halt the company's ethylene output for several months and cost it millions in lost profit.
The Port Arthur plant can produce 1.4 billion pounds of ethylene a year, or 30 percent of Huntsman's global production capacity of that chemical, according to a company statement released Monday. Ethylene is a key ingredient in polyethylene plastic.
The still-raging fire has shut down about 1.8 percent of North American ethylene capacity, estimates Banc of America Securities analyst Kevin McCarthy. "Huntsman's fire should strengthen the ethylene market. It bodes well for competitors."
Ethylene from the Port Arthur plant generated about $25 million of first-quarter profit for Huntsman, or less than 10 percent of the company's total, before it accounted for its interest, taxes, depreciation and amortization expenses.
Huntsman, which is run from Salt Lake City and Houston, is the fifth-largest U.S. chemical producer.
"The fire is still burning and although we have an investigation team on hand it could be awhile before we are in a position to fully assess the damage and determine the cause," Huntsman spokesman Don Olsen said Monday. "It is our intent, though, to rebuild the unit."
Other Huntsman plants in Jefferson County, Texas, weren't affected and 50 workers and contractors working at the plant where the fire started were safe, Olsen said.
The outage could reduce Huntsman's earnings by 10 cents a share and might delay the company's plan to sell or spin off its base chemical and plastics units, JP Morgan securities analyst Jeff Zekausas said. Shares of Huntsman Monday fell 67 cents, or 3.4 percent, to $18.98 in New York Stock Exchange composite trading, the biggest drop since April 6. The stock has dropped 9.8 percent in the past 12 months.
And BB&T Capital Markets analyst Frank Mitsch said the shutdown "will make it difficult for Huntsman to find a buyer" for those units.
Huntsman in early February broke off talks on selling itself, and subsequently announced a plan to spin off its commodity units so it could focus on specialty chemicals, such as coatings and additives, that can deliver more stable profits and are affected less by wide fluctuations in energy and raw material costs.
Olsen said the company does not believe the fire will significantly impact the company's plans to sell or spin off its commodity chemicals units.
The prospect of a prolonged supply reduction sent shares of Huntsman competitor Nova Chemicals up 10 percent on Monday. Dow Chemical Co. and Lyondell Chemical Corp. also rose.
Contract ethylene prices since December tumbled 19 percent to 45.5 cents a pound in April. The Huntsman outage may end the price erosion after another 2 cent drop, McCarthy said. And price for related chemicals, including benzene and propylene, also may get a boost.