- The Washington Times - Wednesday, October 19, 2005

Energy prices

ripple through

cargo doors,

factory floors

High oil and natural gas prices continue to ripple through the economy, affecting everything from chemical producers and glassmakers to delivery charges, airfares and office rents.

Even cushions to sit on will cost more.

Furniture maker La-Z-Boy Inc. is warning that sales and earnings will miss estimates because of limited supplies of a key chemical used in polyurethane foam. Ethan Allen is considering switching to products made with more expensive natural fibers.

The moves come amid potential shortages for oil-based materials as well as soaring prices for natural gas, the fuel that powers so many industrial plants.

Natural gas prices for industrial and commercial consumers have jumped from less than $8 per 1,000 cubic feet a year ago to more than $14 on the spot market, crimping not only household budgets but also businesses’ bottom lines.

U.S. Steel and Alcoa are among metals producers warning that the higher natural gas prices will take a bite out of earnings in the third-quarter — and possibly beyond.

“This natural gas thing is much more serious than people are focusing on,” said Charles Bradford of Bradford Research in New York.

Even before Hurricanes Katrina and Rita disrupted oil and natural gas production in the Gulf of Mexico, rising natural gas prices were raising alarms in the glass industry.

Higher furnace-fuel prices were blamed in part for the closures last year of the Anchor Container glass bottle plant and Glenshaw Glass factory and for layoffs at the Anchor Hocking glass plant, all in Pennsylvania.

Prices have only gone higher since then, forcing William Kelman, a Pittsburgh businessman who bought Glenshaw’s assets in bankruptcy court, to re-evaluate his initial business plans and perhaps delay restarting glass-making furnaces that have been idle for about a year.

Rapidly rising natural gas prices are hurting both big producers such as PPG Industries and smaller companies such as Kopp Glass, a specialty glassmaker in the Pittsburgh suburb of Swissvale.

“There’s been a massive increase lately in the market. Unfortunately, you can only pass some of it on to your customers,” said Lawrence R. Jackson, Kopp’s executive vice president and chief financial officer.

“This is the [highest price] I’ve ever seen. It’s close to a crisis,” he said.

Higher prices are causing problems not just for companies but also for energy sellers who worry about getting squeezed on both the buying and selling ends of transactions.

“People tend to think that gas suppliers and marketers who buy and resell natural gas benefit when the price goes up like this,” said Kevin Shannon, president of the Open Flow Gas Supply Corp., a buyer and reseller based in DuBois, Pa. “The only thing that increases for us when prices climb to this magnitude is the risk.”

The pricing storm has been brewing for some time, Mr. Shannon said.

The electric power generation industry in the United States has met growing demand from consumers in large part by turning to natural-gas-fired generation plants rather than using coal or nuclear power.

“People think nothing of cooling their homes more frequently. Very few coal plants have been built and no nuclear capacity,” Mr. Shannon said. “The vast majority of the incremental generation increase over the last decade or two has been natural-gas-fired.”

Natural gas prices were rising in sympathy with oil prices through the spring and early part of summer, Mr. Shannon said. But extremely hot summer weather diverted natural gas to electric generation that might otherwise have gone into storage for use this winter.

“Then Katrina hit,” said Mr. Shannon.

With prices so high, he is asking customers whether demand will follow the basic rules of economics and drop with the rising prices.

For companies such as U.S. Steel and Alcoa, the demand for energy can’t shift all that much as long as the economy continues to grow, forcing them to continue to produce.

U.S. Steel last month said third-quarter earnings will fall shy of analyst estimates because of higher prices for natural gas and scrap metal and slightly lower prices for sheet steel, its biggest product. Alcoa lowered its third-quarter earnings forecast 30 percent, citing higher natural gas prices as well as rising raw materials costs and lower aluminum prices.

Mr. Bradford, the metals industry analyst, noted that natural gas accounted for about 30 percent of the estimated $2.6 billion Alcoa spent on energy last year.

He expects prices to remain high through the end of the year before receding next year

• Distributed by Scripps Howard News Service

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