NEW YORK (Reuters) - Dow Chemical Co DOW.N, the biggest U.S. chemical manufacturer, said on Wednesday it would raise prices for all products by up to 20 percent, the latest signal that escalating energy prices were stoking inflation.
Chief Executive Andrew Liveris, long a critic of U.S. energy policy, said the U.S. government’s failure to push through new energy policy is hurting domestic manufacturing and killing demand.
“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,” Liveris said in a statement.
Dow said the price increases will take effect on June 1 for all its chemicals and plastics, used in thousands of products from paints and adhesives to insecticides and packaging.
The move came as little surprise to industry watchers since prices for natural gas, a key chemical industry feedstock, have jumped by 56 percent since the end of 2007, and crude oil prices have risen 32 percent to above $125 per barrel.
“What Dow’s doing does help give headline support, but everybody has been doing it anyway,” First Analysis Securities analyst Steven Schwartz said.
Chemicals maker Rohm and Haas Co ROH.N last month said it would apply an indexed raw material and energy surcharge to a variety of products. The index will be adjusted up or down monthly, based on the collective changes in key raw material, crude oil and natural gas costs.
Schwartz said the Rohm and Haas pricing initiative might receive less resistance from customers, as it is transparent and objective.
“Just a general price increase can come across to customers as arbitrary and subjective, of course it is not always transparent either,” Schwartz said.
The success of Dow’s price increases will also depend on the actions of its competing suppliers.
“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 price rises will hurt some sectors more than others. Makers of plastic packaging like Sealed Air Corp (SEE.N) and Bemis Co (BMS.N), which have already seen profits hurt by higher resin costs, are likely to see cost pressures mount.
Paints and adhesives manufacturers are also likely to feel the pinch, as chemical costs form a large portion of their overall expenditure.
The price increases by Dow and others are also likely to exacerbate the pain for consumer goods makers already hurt by a slowing U.S. economy and a slump in the U.S. housing market.
In an interview with Reuters last week, Liveris hinted that the company was on the verge of announcing price increases, while cautioning that inflationary pressures on consumers have reached the point where they are clearly changing behavior.
“The weakness in the United States economy in housing that we have read about for over a year, (along) with the mortgage crises and credit crunch, was one blow. But oil is another blow, and it’s probably one blow too many,” he said.
In 2007, Dow’s feedstock and energy costs rose by $2.5 billion to $24.6 billion, accounting for about half its total costs. Dow 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.
The Midland, Michigan-based company has sought to combat high energy prices by forming joint ventures with companies in the Middle East and North Africa that have access to cheaper raw materials.
Dow will continue its cost-control measures, Liveris said, and accelerate a “top-down competitiveness review” for all its businesses and manufacturing facilities because of the jump in energy prices.
Shares of Dow rose 1 percent to $40.64 in afternoon trade on the New York Stock Exchange.
Editing by Dave Zimmerman and Braden Reddall