Issue Date: June 2, 2008
Dow Chemical Hikes Prices
DOW CHEMICAL is raising prices for all of its products in response to escalating energy costs. Dow, the largest U.S. chemical producer, says prices for some products could increase by as much as 20%, depending on how hard their production has been hit by rising feedstock, energy, and transportation costs.
CEO Andrew N. Liveris says his company's feedstock and energy bill increased by 42% in the first quarter of 2008 compared with the same quarter last year. At current rates, Liveris adds, Dow's combined energy and feedstock costs could hit $32 billion this year,
quadruple what they were in 2002.
According to Liveris, Dow's unusual action stems from the U.S. government's failure to develop a comprehensive energy policy—a failure that he claims has undermined the competitiveness of U.S. manufacturers. "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," he says.
T. Kevin Swift, chief economist for the American Chemistry Council, a chemical industry association, says he is seeing weakening demand for chemicals in the U.S., driven by the fallout from the subprime mortgage crisis and escalating energy and raw material costs. "Rising prices for energy end up ultimately filtering through to the consumer," he points out.
Fred Peterson, president of New London, N.H.-based Probe Economics, says Dow's increase shows that inflation of consumer product prices is inevitable. "It supports the notion that $130 [per barrel of] oil is indeed hurting and is not sustainable," he says. "Something has to give."
But so far, according to the Bureau of Labor Statistics, energy price increases have been outstripping overall inflation. The consumer price index increased 3.9% in April versus the year-ago period, or 2.3% excluding increases in food and energy prices. Meanwhile, the bureau's energy price index increased 15.9%.
The pricing move is rare, but Dow isn't the first company trying an across-the-board increase. Earlier this month, specialty chemical maker Rohm and Haas instituted a surcharge based on an index of energy costs. And following the lead of these companies, Huntsman Corp. last week said it would increase all of its selling prices—some by as much as 25%—and enact an energy surcharge for some products.
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