Dow Chemical issues another major price hike

Chemical giant also plans to reduce capacity, issue freight surcharges

By Dave Hannon -- Purchasing, 6/24/2008 7:50:00 AM

For the second time in a month, Dow Chemical announced it will be pushing dramatic price increases, this time up to 25%, for all of its products in an effort to reduce the impact of higher costs on its bottom line.

In late May, Dow said it would raise prices on all 3,200 products by as much as 20% effective June 1 because of surging costs for energy, raw materials and transportation. This week's price increase from Dow will take effect in July and came along with more bad news for chemical buyers. Dow will also beging implementing a freight surcharge of $300/shipment by truck and $600 for each shipment by rail, effective August 1. 

In a statement, Dow said “The surcharge applies to North America customers buying chemicals, hydrocarbons and plastics where Dow absorbs the freight currently. Later this year a freight surcharge will be implemented in other geographic regions.”

Dow CEO and chairman Andrew Liveris, said, “The price increases we announced on May 28 helped, but they were not enough to fully cover the additional costs we are now facing. For the first half of 2008, our feedstock and energy costs are up more than 40% compared with the same six months of last year. Even since our last announcement, the cost of hydrocarbons has continued to rise, and that trajectory shows no sign of changing.”

Dow has also taken steps to cut its production capacity in North America and Europe. In addition to cutting global ethylene oxide production 25% and acrylic acid production 30% in North America, Dow also will idle 40% of its European styrene production capacity, and has reduced its European polystyrene production by 15%. Last week, it announced it will idle latex production facilities at Pittsburg, Calif. and Varennes, Quebec by year end 2008. Dow has also declared force majeure on several products including caustic soda, which sent caustic prices skyrocketing, ethyleneamine products and other downstream products.

Buyer reaction to the move had been mixed. Joyce Mayo, general manager at chemicals distributor BKM Resources in Eatontown, N.J., told Purchasing.com: "Everyone is feeling the gas crunch, which filters into every aspect of our businesses. But a $300 fuel surcharge is not competitive with the trucking industry. So how is that justified? On top of shortages of product and higher prices?"

For more information: CLICK HERE TO READ Dow Chemical turns inward, a case study on Dow's strategic sourcing efforts.

For more information: CLICK HERE to read Welcome to the C-Suite, including an interview with Tim King, Dow Chemical’s vice president of global purchasing.