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Factories Feeling the Heat From Gas Costs

High fuel prices are eating into profits and causing some firms to change their operations.

October 31, 2005|Ronald D. White | Times Staff Writer

La Brea's prices have risen about 5% overall, but selling more has softened the hit on consumers, Yamin said.

"Whether I'm making one loaf or 10 loaves, it's almost the same amount of time and labor involved," Yamin said. "We are trying to buy bigger and buy smarter."

Analysts are worried that aggressive business practices simply won't be enough because many businesses such as La Brea Bakery are still working off the energy they already bought when prices were lower.

"I am more worried about the long-term impact," said Phil Flynn, vice president and senior market analyst for Alaron Trading Corp. in Chicago. "We are seeing something that could really put the economy at risk."

Kellie Johnson, who runs a small defense industry subcontractor in Torrance, has responded to expensive natural gas by adding 20% to the contract bids submitted by Ace Clearwater Enterprises. She has also joined forces with the National Assn. of Manufacturers to call for new natural gas exploration off the U.S. coast. Ace's problems were featured by the trade group during a recent news conference to urge the lifting of federal bans on new offshore drilling for oil and natural gas.

It's not just that the company's monthly natural gas bill is bigger, rising to $14,000 from $9,000 a year ago, or that suppliers have tacked on surcharges of 1% to 3%, said Johnson, whose company employs 178 people to make metal parts for military aircraft.

An even bigger problem for Ace is that it has seen an erosion in its competitive edge against much larger companies: the ability to deliver products quickly, Johnson said. In fact, Ace will be hard-pressed to match the $28 million in sales it recorded last year, she said.

Before gas prices leaped, Ace would keep its foundry constantly running on low power so that it would be ready to heat rapidly to 900 degrees when needed. Ace now turns off the foundry between jobs. It takes 40 hours to restart and bring it back to operating temperature, and a contractor had to be hired to turn it on every week.

In addition, suppliers of Ace's special metal alloys hold off until they receive an order before they turn ingots into ready-to-use sheet metal, adding substantially to the time Ace must wait for components. In the past, suppliers had the sheet metal ready to go, but rising natural gas costs have caused them to hold off until they have a waiting customer.

"I'm sure we are losing on contract bids because of this," Johnson said. "It's killing my company."

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