Dow Chemical raises its prices for second time in single month
Published 5:00 am Wednesday, June 25, 2008
The Dow Chemical Co. said Tuesday that it was raising prices for the second time in a month to offset a “relentless rise” in energy costs, a sign that companies may increasingly have to pass on price increases to their customers.
The increase of as much as 25 percent — the largest in the company’s history — comes after a 20 percent rise in May that the company said did not go far enough given the continuing surge in energy prices.
Dow, which makes products ranging from pesticides to plastic wraps, also said it would impose freight surcharges of $300 for each truck shipment and $600 for each rail shipment beginning Aug. 1 in the United States. In addition, it will scale back production in plants across North America and Europe.
Andrew Liveris, the company’s chairman and chief executive, said the changes were “extremely unwelcome but entirely unavoidable” as oil and natural gas continue to set records.
Oil prices are up more than 40 percent this year and have risen $9 per barrel since Dow’s earlier price increase. Natural gas is up more than 70 percent this year.
“There came a point where the surge became so ridiculous that we had to raise prices,” Chris Huntley, a company spokesman, said, adding that the latest price increase would affect everything from fabric and cushions to CD cases, Styrofoam and car parts.
Analysts said they expected other companies to follow suit. When Dow announced May’s increases, it spurred a series of similar increases by other chemical manufacturers, including DuPont and BASF.
Dow’s announcement is the latest indication that companies are beginning to pass along the burden of high energy prices to consumers. Until now, those prices had largely been absorbed by company profits because market competition prevented retailers from increasing prices at their stores. But extreme pressure is building in the production chain.
For example, Lowe’s, the home-improvement company, has been receiving “unprecedented requests” for price increases from its suppliers, Robert Hull Jr., the chief financial officer, said at a conference. Hull added that the company had been absorbing price increases, but he forecast that some of that increase would be passed along later this year.
In addition to soaring energy costs, companies are also having to deal with the increase in the cost of raw materials.
Posco of South Korea, one of the world’s largest steel producers, said Tuesday that it was raising prices by more than 20 percent. That followed an agreement Monday between the global mining company Rio Tinto Group and the biggest steel maker in China, Baosteel, to raise the price that Baosteel pays for Australian iron ore by as much as 97 percent.
“It’s clearly a global trend that the higher costs of raw materials are being passed on along the production chain,” said Holger Schmieding, the chief European economist at the London office of Bank of America. “Companies have no alternative but to pass that along to their customers.”