DALLAS – Investors seem to believe that building materials companies will profit dramatically from the rebuilding of the Gulf Coast after Hurricane Katrina. The stock prices of companies that make products such as cement, steel and roofing have spiked dramatically higher in the days after Hurricane Katrina.

However, analysts and company executives caution that it’s much too early to assess the impact of the hurricane on these companies. Further, they say, higher stock prices are as much the result of speculation as a change in company fundamentals.

Shares of Dallas-based ElkCorp, which makes roofing materials, are up more than 20 percent since the hurricane; and shares of Texas Industries Inc., the cement maker, and Commercial Metals Co., a local steelmaker, both jumped 15 percent.

Such companies face two obstacles to fulfilling the promise of their surging stocks. First, their plants are already running at full capacity because of the long-running construction boom in the United States. That means the companies can’t sell more, because they can’t produce more, so they only benefit if the prices of their products move higher.

Second, thanks to the construction boom, their stock prices were already high, with much of the upside potential already baked into the cake.

“We are producing all we can produce,” said Richard Fowler, chief financial officer at Texas Industries.

Shares of Texas Industries climbed from just above $30 a share this summer and were already above $50 before the hurricane. They closed Tuesday at $60.86 a share.

Fowler said Texas Industries currently produces about 5 million tons of cement annually – a relatively small portion of the 120 million tons of cement the nation uses each year. Before the hurricane, the states of Louisiana and Mississippi used slightly less than 3 million tons of cement yearly.

“And that’s for the entire two states,” Fowler said. “So I don’t know if the rebuilding will impact in any material way the price of cement.”

Stefan Lumiere, who analyzes basic materials companies for Oscar Gruss & Sons Inc. in New York, said he believes cement prices will move higher simply because demand throughout the United States is outstripping supply. Currently, cement is priced at about $80 a ton. He foresees it hitting $90 a ton over the next few months.

That obviously would help the cement makers, but these companies are also fighting an uphill battle with higher fuel and electricity expenses. Further, Lumiere said, Texas Industries shares are already close to his 18-month price target of $63. In fact, he now has a “hold” rating on the stock, rather than a “buy” rating.

“I wouldn’t sell the stock, but I will say it has moved a little ahead of itself,” Lumiere said.

The situation at Commercial Metals is much the same. The nationwide construction boom had already boosted profits well before Katrina hit. And its shares had moved from about $23 to about $30 – a 30 percent gallop. Since the hurricane, the stock has moved even higher, to $34 per share.

And revenue in the first nine months of the fiscal year ending May 31 topped $4.9 billion, substantially ahead of the $3.3 billion from the comparable period a year ago.

Bill Larson, chief financial officer of Commercial Metals, said he doesn’t think the rebuilding of the Gulf Coast will cause a price spike in his company’s main product – reinforced steel bars, also known as rebar. Instead, it will simply prolong the excellent construction cycle in the United States.

“This rebuilding effort down there is not measured in months; it will be measured in years,” Larson said. “There is a lot of projection and speculation about the impact of the hurricane, but it’s all just a guess at this point.”

Factors that influence the price of rebar – the economic expansions in China, India and the United States – were in place long before Katrina, he said. Rebar prices have been very volatile in recent months.

In November 2004, rebar prices hit a high of about $260 a ton. Prices began drifting down in early spring and summer, but then spiked higher in recent months above $200 a ton.

The steel plants, like the cement plants, are running near capacity, so why not simply build more plants?

Asked if Commercial Metals plans to add capacity, Larson said: “It’s premature to comment on that. We need to see how much activity comes from down there and how fast.”


ElkCorp’s four plants run virtually nonstop, seven days a week, to keep up with demand. Chief executive Thomas Karol said the first orders for roofing materials from the Gulf Coast are beginning to come in, and the company will allocate some of its inventory to this area.

“We run as much roofing out of our plants as we can, but we expect to be completely sold out at the Ennis plant and the Tuscaloosa plant for the foreseeable future,” he said.

The price of asphalt shingles increased 9 percent last year and 5 percent more in September. But Karol said the additional costs of fuel and electricity basically offset the price increases and curbed profit margins.

“When demand exceeds supply, you sometimes can improve your profit margins,” Karol said. “If we get the prices into the market effectively, we should be able to maintain our profit margins. But if the pricing lags, then we could have a dilution of margins.”

Further, he said, the roofing business is highly competitive, with several major players fighting for market share.

He estimates that rebuilding homes along the Gulf Coast will increase demand for roofing by 10 percent to 15 percent. The Florida hurricanes last year increased demand about 15 percent.

“There’s not going to be any price gouging, and there’s not going to be any kind of windfall,” Karol said. “Everybody will just try to service the market and sell at reasonable prices.”

(c) 2005, The Dallas Morning News.

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Distributed by Knight Ridder/Tribune Information Services.

AP-NY-09-13-05 1959EDT

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