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Energy costs force Dow to raise prices

Dan Grech May 28, 2008

Energy costs force Dow to raise prices

Dan Grech May 28, 2008


Kai Ryssdal: Not to get all Ben Bernanke on you here, but have you ever wondered why inflation’s been fairly tame for so long?

Part of the answer is Mr. Bernanke’s interest rates, yes. The other part, though, is this thing called pricing power — companies couldn’t raise prices because consumers wouldn’t pay ’em — but today, the country’s biggest chemical company said it’s fed up and it’s not gonna take it anymore.

The company in question is Dow Chemical and in all fairness, it’s waited way longer than others to raise prices, but today Dow said effective this weekend, prices for all 3,200 of its products are going to go up by as much as 20 percent.

Even if you couldn’t recognize many of those products, you’ll recognize the culprit right away, as Marketplace’s Dan Grech reports.

Dan Grech: Dow Chemical says this across-the-board price hike is unparalleled in its 111-year history.

Frank Mitsch is a senior chemical analyst at BB&T Capital Markets. He says chemical companies once gave wholesale customers 90-days notice before raising prices. Today’s hike hits in just four days.

Frank Mitsch: This is an unprecedented move by them to announce it pretty much across the board really to signal to their customer base that it’s no longer business as usual, they really need to get prices up ASAP.

Like everyone else, Dow has been hit by high energy and transportation prices and petroleum products are a key ingredient in much of what Dow makes — things like Styrofoam, pesticides and plastics. Dow says its hydrocarbons spending has quadrupled in just six years to a projected $32 billion this year. Those costs now make up half of its total spending.

Mitsch: We have seen bits and pieces of these types of announcements from other companies, but obviously you’re talking about the 800-pound gorilla here with Dow, so yes, I do expect to see other chemical producers announce price increases as well.

And you know what that means:

Peter Morici: It’s inevitable that inflation will increase for a time when energy prices have jumped as much as they have.

That’s economist Peter Morici with the University of Maryland.

To cut costs, Dow laid off 1,000 workers in December and is moving its commodity chemical production to Asia and the Middle East, where raw materials are cheaper.

I’m Dan Grech for Marketplace.

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