Archive for Thursday, May 29, 2008

Dow: Country in energy crisis, get ready for higher prices

May 29, 2008

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Better start stocking up on diapers and detergent.

Consumers hit hard in recent months by sharply higher prices for gasoline and food should prepare to start paying more for various household items following Dow Chemical Co.'s decision to raise its prices by up to 20 percent to offset the soaring cost of energy.

The company, which announced the price increases Wednesday, took the unusual step of directing blame at the nation's energy policy makers.

"For years, Washington has failed to address the issue of rising energy costs and, as a result, the country now faces a true energy crisis, one that is causing serious harm to America's manufacturing sector and all consumers of energy," Andrew Liveris, Dow Chemical's chairman and chief executive, said in a written statement.

Dow Chemical's spiraling costs are "forcing difficult discussions with customers," he said.

The Midland, Mich.-based company supplies a broad swath of industries, from agriculture to health care, and any sizable price jumps would likely affect almost all of them.

The price increases will take effect Sunday and will be based on a product's exposure to rising costs. Dow Chemical said it spent $8 billion on energy and hydrocarbon-based feedstock, or raw materials, back in 2002 and that could climb fourfold to $32 billion this year.

Dow Chemical makes everything from the propylene glycols used in antifreeze, coolants, solvents, cosmetics and pharmaceuticals, to acrylic acid-based products used in detergents, wastewater-treatment and disposable diapers.

It makes key ingredients used in paints, textiles, glass, packaging and cars.

The company, whose products are sold in 160 countries, last month reported a 3 percent drop in quarterly earnings amid a 42 percent jump in energy and raw materials costs.

Its profit margins shrank from 9.8 percent in 2005 to 7.6 percent in 2006, and to 5.4 percent last year. During the 12-month period that ended March 31, the margin narrowed to 5.1 percent, according to Capital IQ.

Crude oil prices surpassed $135 a barrel last week, more than double the price from a year ago. Rising energy and transportation costs have been blamed for higher food prices, which rose 5 percent last year, the highest gain in 17 years.

Kevin McCarthy, a Banc of America Securities analyst, said in a note to investors there is "a growing unwillingness among chemical producers to function as an energy shock absorber."

Companies and entire industries are looking for ways to share increases in the cost of doing business, said Mark Stephenson, a spokesman for chemical giant BASF Corp. in Florham Park, N.J.

"For us, BASF, we don't consider prices across the board, like you saw with Dow," Stephenson said. "Rather, we look at the necessity for increases on a product-by-product basis."

He said BASF had raised its prices for "a handful of products" during the past three months, but he did not know how many products had gone up in the year.

Another competitor, Rohm and Haas Co., announced April 29 that, beginning this month, it will apply an indexed raw materials and energy surcharge to products made by its Specialty Materials businesses. The index will be adjusted up or down monthly, based on the collective changes in key raw material, crude oil and natural gas costs, according to the Philadelphia-based company's Web site.

On Friday, suburban Dallas-based Kimberly-Clark Corp. announced that the consumer products maker will raise prices 6 percent to 8 percent beginning in late July for Huggies diapers, Pull-Ups training pants, and Cottenelle and Scott bathroom tissue. Company spokesman Joey Mooring declined to comment on Dow Chemical's price increases.

Paul Fox, a spokesman for Procter & Gamble Co., said Wednesday the company announced some pricing changes earlier this year and had no immediate response to the action being taken by Dow Chemical. Cincinnati-based P&G reiterated in April that more price increases were coming this summer.

Dow shares rose 60 cents to $40.83 in trading Wednesday.

Comments

jmadison 7 years ago

Congress and the President should get a free ride on this. The narrative is that its greedy average Americans who are at fault for all our energy woes.

avoice 7 years ago

On the one hand, I think it's going to take some corporate bigwigs getting angry to get any kind of near-term strategy on energy costs happening in Congress.On the other hand, I'm wondering how much the bigwigs at Dow make. Their willingness to take a much-needed paycut could help things along quite a bit, I'm sure.

SearchingForTruth 7 years ago

We could be making many products out of industrial hemp, but instead our choices of products are toxic crap from the likes of Dow and DuPont. Just another example of big business controlling politics, and of course controlling our product choices:http://www.lightparty.com/Energy/Hemp5.html

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