Venezuelan Indus Returning To Normal As Gas Supply Rises

sg.biz.yahoo.com Friday March 14, 4:52 AM By Jehan Senaratna Of DOW JONES NEWSWIRES

CARACAS (Dow Jones)--With the effects of a debilitating general strike just about behind him, Alberto Hassan, chief executive at Venezuela's Orinoco Iron, is working on August and September business.

Output hasn't been fully restored quite yet after gas shortages during the strike forced the facility into standby mode, but Orinoco Iron is among a growing number of companies that are slowly resuming production.

According to Hassan, Orinoco is sold out through July, and "normalizing" is definitely a near-term goal. "We plan to restart our second production line on Mar. 21, and we should have all the gas we need for that," he said.

Orinoco Iron, along with its sister company Venprecar, produces about 1.3 million tons a year of hot briquetted iron - about a third of Venezuela's total output.

The company needs about 60 million cubic feet per day of natural gas to run its equipment, and Venprecar, which should be restarted in the "first days of April," needs about another 35 million cfpd, Hassan said.

At the most conservative of estimates, Venezuela's state oil giant Petroleos de Venezuela SA (E.PVZ) is now pumping about 4.1 billion cfpd of gas, according to Alfredo Gomez who represents a group of dissident oil workers who brought the company to a virtual halt during the strike which began Dec. 2.

That's only about 43% of pre-strike levels, but "it's good enough" to get most heavy industries back to normal, Gomez said.

Since gas is pumped during crude oil extraction, the levels are rising as Venezuela's oil output increases.

Gomez's group estimates crude output at around 2.1 million barrels per day now, well on its way back from a low of around 150,000 b/d at the height of the strike. Daily production stood at about 3 million barrels before the strike.

Orinoco Iron isn't alone in slowly bringing production back to pre-strike levels as gas supplies improve.

Comsigua, a competitor, is also returning to its normal output of about 1.1 million tons a year, according to industry sources, although another hot briquetted iron producer, Opco, which is run by Japan's Kobe Steel Let. (J.KOB) and produces 900,000 tons per year, hasn't yet achieved that.

Steelmaker Siderurgica del Orinoco CA, or Sidor, another major player in Venezuela's heavy industry belt in eastern Bolivar state, is getting about 190 million cfpd out of the 200 million cfpd of gas it needs, according to industry sources.

In other parts of the country, too, operations are slowly returning to normal.

Ricardo Tinoco, spokesman of Ford Motor Co.'s (F) local unit in central Venezuela, said operations have returned to normal since about a month ago because suppliers, many of whom had shut down due to the lack of gas, have resumed production.

"Our suppliers are doing OK. I haven't recently heard of any problems with gas," Tinoco said.

Orinoco Iron's Hassan is celebrating another fortunate, if unrelated, turn of events.

International hot briquetted iron prices have risen by about 40% to $145 per ton F.O.B, due to supply problems and heavy demand in China and Southeast Asia, he said.

But there's no forgetting Venezuela's problems, he said.

The strike was aimed at forcing President Hugo Chavez to declare early elections but the left-leaning leader has refused and many fear he may block any form of a vote in a bid to stay in power despite overwhelming opposition.

The government is in the process of cutting this year's budget while hoping to raise money from various bond issues to plug estimated financing needs equal to about 10% of gross domestic product.

Unemployment is seen soaring to more than 25% from the current 17% as more businesses shut their doors after the government imposed currency controls to protect falling reserves given oil revenues, which account for about half of pubic income, were severely affected by the strike.

The controls include restrictions on imports - which accounted for about 60% of consumption last year, including raw materials for an array of manufacturing process - sparking fears that some industries may never resume normal output.

Annualized inflation is almost 40% and is seen likely to increase as the bolivar's value drops beyond the current VEB2500 per dollar levels in private markets despite the official VEB1598 per dollar rate.

-By Jehan Senaratna, Dow Jones Newswires;58 212-564-1339 jehan.senaratna@dowjones.com