Dow Chemical Sets Price Hikes

Press Release From Reuters:

Dow Chemical Co. said on Tuesday it will boost its prices as much as 25 percent, institute freight surcharges and cut output of some products because of soaring energy prices.

The price hikes come after last month's across-the-board 20 percent increase by the Midland, Michigan-based company, which makes thousands of products ranging from plastic wraps to car parts and insecticides.
"What we're doing is trying to protect our earnings," Chairman and Chief Executive Officer Andrew Liveris told broadcaster CNBC.

Dow said it is also undertaking a series of cost reduction measures on staffing, facilities and spending at its automotive unit because of the decline in North American auto sales.

The chemical maker's costs for oil and natural gas feedstocks and its energy bills have jumped fourfold over the past five years to an estimated $32 billion this year.

The price increases announced on May 28 were not enough to cover additional energy prices increases, Liveris said.

Oil prices have jumped 44 percent so far this year, including a $9 per barrel jump since Dow's last price hike, while natural gas prices have surged 75 percent.
The company also trimmed its production of the industrial chemical ethylene oxide by 25 percent and idled 30 percent of its North American acrylic acid output. Dow will idle 50 percent of its European styrene production and has cut European polystyrene production by 15 percent.

"What these initiatives are telling us is that pricing power is weak, and Dow is trying to bring supply down to where demand is," Credit Suisse analyst Mark Connelly, who has a "neutral" rating on Dow, said in a reseach note.

Oil prices have jumped 44 percent so far this year, including a $9 per barrel jump since Dow's last price hike, while natural gas prices have surged 75 percent.
The company also trimmed its production of the industrial chemical ethylene oxide by 25 percent and idled 30 percent of its North American acrylic acid output. Dow will idle 50 percent of its European styrene production and has cut European polystyrene production by 15 percent.

"What these initiatives are telling us is that pricing power is weak, and Dow is trying to bring supply down to where demand is," Credit Suisse analyst Mark Connelly, who has a "neutral" rating on Dow, said in a research note.

"In capital intensive businesses, you don't idle capacity unless you need to. You do it when the market is bad, and you don't expect to cover fixed costs."

He said the round of price increases implies weaker margins, as costs have continued to move up faster than prices.

Liveris again called for the U.S. government to overcome political squabbling and pass energy measures to increase supplies.

"We've got to get bipartisan energy policy... This is too important a country to take aspects of energy policy off the table," he told CNBC.

From August 1, Dow will implement a surcharge of $300 per shipment by truck and $600 per shipment by rail in North America for customers buying chemicals, hydrocarbons and plastics. Freight charges will be applied in other regions later this year.

Shares of Dow were down 88 cents, or 2.3 percent, at $36.74 in afternoon trade on the New York Stock Exchange.