No post-hurricane buying surge seen

Staff -- Purchasing, 10/6/2005

There appears to be no sentiment among industry observers or buyers that the post-Hurricane Katrina chemicals market will see a sales surge. Of the chemicals buyers answering PURCHASING's September business survey, only 14% report a materials inventory growth strategy for chemicals. And only 44% plan to expand buying of chemicals over next the three months.

Credit Suisse First Boston analyst William Young says producers of basic petrochemicals, plastics and chlor-alkali products won't see a surge in sales anytime soon. "We don't believe there will be a massive inventory build" among end users, according to Young.

Rising energy prices are a Catch 22 for chemical companies, which are highly sensitive to energy costs. Petroleum and natural gas have been tightened in supply by the hurricane which has caused a steep rise in chemicals and resins prices. Overly high energy costs tend to cause high chemicals prices, can tend to curb production, which reduces demand for chemicals. That's why one chemicals/resins buyer says that "business conditions should remain status quo for the rest of the year."

Analyst Michael Englund at Action Economics expects that hefty price gains are in the works for September—and that could depress sales in coming months. However, analyst Frank Mitsch with Fulcrum Global Partners is more bullish, writing that Katrina probably will create capacity concerns in the near-term but "the long-term impact [may be a] reduction in production capacity which will further tighten the supply/demand balance and help producers push through price increases," Mitsch says in a research note. Meanwhile, 59% of the chemicals buyers surveyed say they have encountered purchasing headaches since the end of August.

"Due to Hurricane Katrina, we are experiencing possible delays in delivery of feedstocks to our suppliers, which may force us to increase our leadtimes," says the purchasing manager of a firm that makes liquid and powder defoamers.