Helium is great for filling birthday-party balloons and the blimps that occasionally drift over football fields. People wishing to sound like Donald Duck have been known to inhale a whiff of the stuff. Last week, however, this smile-inducing element put a frown on the prospects of at least one company.

Party City, a Westchester-based retailer planning to go public, warned potential investors that "our business may be adversely impacted by helium shortages." Indeed, it already has been. Rising prices for the gas caused net sales of "domestic metallic balloons" to fall by $4.4 million during the first nine months of last year, a 7% decline. Party City believes the shortage is temporary, but, for now at least, it's gotten worse: A leading supplier, Airgas Inc., said in December that it would raise helium prices by 20% because of the ongoing global shortage. "The costs of securing helium continue to increase," said Airgas CEO Michael Molinini. "Constantly changing supply-and-demand geographies are causing us to incur greater distribution expenses to move the product from where we receive it to where it is needed by our customers." Not exactly welcome news for Party City or its owner, private-equity shop Thomas H. Lee Partners, which presumably is trying to lighten its 70% stake in the company through the IPO. Helium-balloon sales accounted for about 4% of Party City's $1.3 billion sales through last Sept. 30, during which it posted a $52 million net loss. Like many companies subjected to leveraged buyouts, Party City carries a hefty debt load—$2.3 billion—and can ill afford input cost increases.Some of the helium shortage is attributable to growing demand for the gas for industrial purposes, such as making semiconductors or MRI scanners. (Fun fact: Helium has the lowest boiling point of any element, at only 4 degrees above absolute zero.) But most of the problem is politically driven. In 1996, lawmakers decided to start selling off the nation's helium reserve to pay off debts the U.S. government had incurred from storing the stuff. But sales were set to expire last October, which was a big deal because the U.S. was a big supplier of helium, and private providers have been unable to keep up with demand. That's why prices have doubled since 2006, to $6.13 per-cubic meter, according to the latest figures from the U.S. Geological Survey. Although Congress agreed last year to extend sales from the nation's helium reserve, prices apparently are still floating up.Unfortunately for Party City, there aren't any good alternatives to helium. The USGS says argon can be substituted as a welding material, and hydrogen can sometimes replace helium, but only in "some lighter-than-air applications in which the flammable nature of hydrogen is not objectionable." In other words, not in birthday balloons.