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Rita may cause slowdown in filling Huntsman orders

Hurricane affected chemical production at 6 sites in Texas

Salt Lake-based Huntsman Corp., the fourth-largest U.S. chemicalmaker, said it may not be able to fill orders for ethylene, propylene and specialty chemicals produced at six Texas sites because of damage from Hurricane Rita.

Huntsman invoked so-called force majeure clauses in contracts for products made at Port Arthur, Port Neches, Conroe, Dayton, Chocolate Bayou and Freeport, spokesman Don Olsen said Thursday in an interview. The clause allows the company to avoid penalties for failing to deliver products due to circumstances beyond its control.

About 56 percent of North American capacity for ethylene, a building block chemical used in plastics, remains shut, Chemical Market Associates Inc. said Wednesday in a report. Port Arthur and Port Neches were most affected by Rita, which struck the Texas-Louisiana border area on Sept. 24, Olsen said. Neither of the facilities, which make base chemicals, has resumed output.

"Even at those sites that are now working, we are severely constricted by raw-material supply and infrastructure, power and so forth," Olsen said in a telephone interview from the company's Houston offices. "We are doing everything we can to deliver our products, despite force majeure."

Shares of Huntsman rose $1.26, or 7.1 percent, to close at $19.11 Thursday on the New York Stock Exchange, the biggest percentage gain since April 25, after Huntsman said ethylene prices in Europe are surging. The shares have fallen 17 percent since the company's initial public offering Feb. 10.

The chemical industry probably will lose about 1 billion pounds of ethylene production from Rita, equivalent to the annual output at a major plant, Chief Executive Peter Huntsman said in a Sept. 26 telephone interview. The reduced supply should allow prices to rise faster than energy costs in the fourth quarter, he said.

Ethylene contracts in Europe will settle higher than $1,000 a metric ton in the fourth quarter, from about $780 in the third quarter, Peter Huntsman told investors Wednesday in New York. The 28 percent rise would be "the single largest increase in the history of European ethylene," Huntsman said. U.S. producers also are proposing record ethylene increases, he said.

Propylene contracts are set to rise, as well, he said. Propylene, about half of which is made in oil refineries, is in short supply following Rita and Hurricane Katrina. More than 34 percent of refinery propylene production in North America is shut, Chemical Market Associates said.

At least five producers have declared force majeure for polypropylene plastic, used to make car parts and bottle caps. Among those companies are Dow Chemical Co., BP Plc's Innovene unit, Sunoco Inc., Basell and Total SA. More than 55 percent of North American polypropylene capacity remains shut following Rita.

Also shut is 55 percent of high density polyethylene capacity, 46 percent of low-density polyethylene production and 73 percent of linear low-density polyethylene output, Chemical Market Associates said. Polyethylene, the world's most common plastic, is used to make food packaging, garbage bags and toys.

About 85 percent of styrene capacity is shut, including 28 percent at plants that have begun to resume production, the Houston-based consultant said. Styrene is needed to make polystyrene plastic, used in disposable cutlery and packaging for prepared foods.

About 16 percent of chlorine and caustic soda production remains offline, including 8.9 percent at a Lake Charles, La., plant owned by PPG Industries Inc. PPG declared force majeure Sept. 26 on deliveries of chlorine, caustic soda and other products from the plant. Georgia Gulf Corp. Wednesday invoked force majeure for caustic soda and vinyl resins.

Dow Chemical is the largest U.S. chemical maker by 2004 sales, followed by Exxon Mobil Corp., DuPont Co. and Huntsman.