Dow Chemical Hikes Prices 20%, Citing Energy Costs


Dow Chemical, the biggest U.S. chemical manufacturer, said on Wednesday it would hike prices for all its products by up to 20 percent next month, the latest signal that escalating energy prices were stoking inflation.

Citing a sharp rise in the costs of energy, raw materials and transportation, Dow will raise prices globally on its broad slate of products that range from plastics and films to paints and agricultural supplies from June 1.

Dow's move came as little surprise to industry watchers, since prices for natural gas, a key feedstock for the chemical industry, have jumped by 56 percent since the end of 2007, and crude oil prices have rallied 32 percent to more than $125 per barrel.

But whether Dow can push through the price increases to its customers is not certain.

"So much will depend on what Dow's competitors do," said BB&T Capital Markets analyst Frank Mitsch. "Given the raw material inflationary environment, I would guess that most of their competitors will match them."

The Midland, Michigan-based company said its cost of energy and feedstocks surged 42 percent in the first quarter from a year earlier, and the jump in crude oil and natural gas prices was continuing.

Dow has sought to combat high energy prices by forming a joint venture with a unit of Kuwait Petroleum to take advantage of the Middle Eastern country's access to energy resources.

That joint venture, in which Dow will receive $9.5 billion for selling 50 percent interest in five of its businesses, is scheduled to close in the fourth quarter.

Government Inaction

Dow Chief Executive and Chairman Andrew Liveris, long a critic of U.S. energy policy, blasted the U.S. government for its lack of attention to the issue.

"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 said in a statement.

In 2007, Dow's feedstock and energy costs rose to $24.6 billion. Those costs now account for about half of its total costs.

Dow will continue its cost-control measures, Liveris said, and accelerate its "top-down competitiveness review" for all its businesses and manufacturing facilities because of the jump in energy prices.

Shares of Dow were rose 0.3 percent to $40.35 on the New York Stock Exchange, lagging the 0.6 percent gain in the Standard & Poor's chemicals index.

Related Tags