Nalco rating cut by JPMorgan on Gulf dispersant lawsuit risk

Nalco Holding Co.'s stock rating was reduced by JPMorgan Chase & Co., which said the chemical maker faces litigation risk for providing BP Plc with dispersants for breaking up the oil spill in the Gulf of Mexico.

It isn't known what effect Nalco's Corexit dispersants will have on Gulf marine life or workers who handle the chemical, New York-based JPMorgan analysts led by Jeffrey Zekauskas wrote today in a report. The bank reduced its recommendation to "neutral" from "overweight" and its six-month target share price to $22 from $30.

Nalco Chief Executive Officer J. Erik Fyrwald met with members of Congress on May 26 to assure them that Corexit is safe after the Environmental Protection Agency demanded BP limit its use. More than 1 million gallons have been used on the spill and as much as 15,000 gallons a day continue to be deployed, Zekauskas wrote.

"The biological and ecological effects of dispersant use in such quantities are not known," Zekauskas wrote in the note. "Were Nalco to find itself a party to litigations, pressure may well be placed on the shares, perhaps resulting in a more favorable entry price for investors than the current price."

Even the potential of litigation may outweigh Nalco's favorable earnings outlook, capping the share price, Zekauskas said. The EPA wants Corexit use limited because it contains solvents and petroleum distillates, he said.

Nalco, based in Naperville, fell $1.08, or 4.9 percent, to $21.07 at 12:14 p.m. in New York Stock Exchange composite trading. The shares fell 13 percent this year through yesterday.

Richard Denison, senior scientist in Washington for the Environmental Defense Fund, said last week it's unknown whether the chemical may accumulate in marine tissue and kill fish, shrimp and other marine life or enter the food supply.

Nalco is the world's largest provider of water treatment services.

Charlie Pajor, a spokesman for the company, didn't immediately return a call seeking comment.