Chemical Company Risk from Isaac Limited
Hurricane Isaac may make investors in chemical stocks nervous about the impact on the industry, but an analyst said Tuesday that concerns about long-term disruptions are probably unwarranted.
THE OPINION: Jefferies analyst Laurence Alexander said that any damage from the storm, expected to make landfall Tuesday in Louisiana as a low-level hurricane, can be largely offset with insurance and price increases that usually come after major outages. Also Alexander thinks that any hurricane-related disruptions will more likely be in refinery production, rather than a direct hit on chemical producers.
Nearly 80 percent of oil production in the Gulf of Mexico was halted as of Monday afternoon. A number of refineries have shut down or curtailed production.
Alexander noted that chemicals used as additives in fuel, pesticides and dyes are the most vulnerable to production disruption, because so many are produced in the Gulf region.
But given the slowdown in market demand for the range of products that use chemical compounds, the analyst said that any interruptions shouldn't cause shortages or other major problems.
If more than 20 percent of chemical production is affected, it could put a strain on chemical companies for the rest of the year. Even if that happens, Alexander believes stock declines are usually less than expected and short-lived.
THE STOCK: In afternoon trading, Dow Chemical Co. lost 8 cents to $29.35. DuPont Co. fell 16 cents to $49.79. Westlake Chemical Corp. rose 14 cents to $68.90. Eastman Chemical Co. rose 41 cents to $55.79.