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Dow, citing ‘energy crisis,’ ups its prices

Better start stocking up on diapers and detergent.
DOW Price Increase
"The country now faces a true energy crisis, one that is causing serious harm to America's manufacturing sector and all consumers of energy," Andrew Liveris, Dow Chemical's chairman and chief executive, said in a written statement.Mark Lennihan / AP
/ Source: The Associated Press

Better start stocking up on diapers and detergent.

Consumers hit hard in recent months by sharply higher prices for gasoline and food should prepare to start paying more for various household items following Dow Chemical Co.'s decision to raise its prices by up to 20 percent to offset the soaring cost of energy.

The company, which announced the price increases Wednesday, took the unusual step of directing blame at the nation's energy policy makers.

"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," Andrew Liveris, Dow Chemical's chairman and chief executive, said in a written statement.

Dow Chemical's spiraling costs are "forcing difficult discussions with customers," he said.

The Midland, Mich.-based company supplies a broad swath of industries, from agriculture to health care, and any sizable price jumps would likely affect almost all of them.

The price increases will take effect Sunday and will be based on a product's exposure to rising costs. Dow Chemical said it spent $8 billion on energy and hydrocarbon-based feedstock, or raw materials, back in 2002 and that could climb fourfold to $32 billion this year.

Dow Chemical makes everything from the propylene glycols used in antifreeze, coolants, solvents, cosmetics and pharmaceuticals, to acrylic acid-based products used in detergents, wastewater-treatment and disposable diapers.

It makes key ingredients used in paints, textiles, glass, packaging and cars.

The company, whose products are sold in 160 countries, last month reported a 3 percent drop in quarterly earnings amid a 42 percent jump in energy and raw materials costs.

Its profit margins shrank from 9.8 percent in 2005 to 7.6 percent in 2006, and to 5.4 percent last year. During the 12-month period that ended March 31, the margin narrowed to 5.1 percent, according to Capital IQ.

Crude oil prices surpassed $135 a barrel last week, more than double the price from a year ago. Rising energy and transportation costs have been blamed for higher food prices, which rose 5 percent last year, the highest gain in 17 years.

Kevin McCarthy, a Banc of America Securities analyst, said in a note to investors there is "a growing unwillingness among chemical producers to function as an energy shock absorber."

"To be sure, cost inflation is not new; it has been an ongoing battle for Dow and others in recent years," he wrote. "However, we are seeing a new sense of urgency at Dow, and its competitors, to pass along escalating and volatile costs in an environment of decelerating demand."

Price increases from major suppliers significantly affect the cost of manufacturing, said Angie Chaplin, a spokeswoman for Solo Cup Co. The Highland Park, Ill.-based company is a customer of Dow Chemical.

"We absorb as much of these increases as we can through greater efficiency in our own operations, but we have no choice other than to pass on some of the increased cost to our customers," she said.

Companies and entire industries are looking for ways to share increases in the cost of doing business, said Mark Stephenson, a spokesman for chemical giant BASF Corp. in Florham Park, N.J.

"For us, BASF, we don't consider prices across the board, like you saw with Dow," Stephenson said. "Rather, we look at the necessity for increases on a product-by-product basis."

He said BASF had raised its prices for "a handful of products" during the past three months, but he did not know how many products had gone up in the year.

Another competitor, Rohm and Haas Co., announced April 29 that, beginning this month, it will apply an indexed raw materials and energy surcharge to products made by its Specialty Materials businesses. The index will be adjusted up or down monthly, based on the collective changes in key raw material, crude oil and natural gas costs, according to the Philadelphia-based company's Web site.

On Friday, suburban Dallas-based Kimberly-Clark Corp. announced that the consumer products maker will raise prices 6 percent to 8 percent beginning in late July for Huggies diapers, Pull-Ups training pants, and Cottenelle and Scott bathroom tissue. Company spokesman Joey Mooring declined to comment on Dow Chemical's price increases.

Paul Fox, a spokesman for Procter & Gamble Co., said Wednesday the company announced some pricing changes earlier this year and had no immediate response to the action being taken by Dow Chemical. Cincinnati-based P&G reiterated in April that more price increases were coming this summer.

The American Chemistry Council spent $770,000 in the first quarter of this year lobbying lawmakers on climate change, energy-policy reform and other issues. The council wants new supplies of natural gas — which is used extensively by its members to heat and power their facilities and as a raw material for thousands of products — brought to market by opening access to supplies that are currently off-limits.

The trade group represents more than 130 companies, including Dow Chemical, and spent about $2.4 million lobbying last year.

Dow Chemical itself spent $540,000 lobbying in the first quarter and more than $3.4 million last year on various pieces of legislation, including energy efficiency and climate change bills.

"I don't know how right or wrong Dow is about its pricing, but I'm sure fed up with the feel-goodism that has passed for congressional energy policy all this year and last," said Rep. Joe Barton, R-Texas, ranking member of the House Energy and Commerce Committee.

"That's why Republicans introduced a dozen bills that touch every portion of the energy sector, and whatever it takes to get them to the House floor, we're for, because we want energy prices down."

Both Democrats and Republicans have agreed on long-term plans to increase the use of renewable fuels and reduce consumption as the means for limiting U.S. dependence on foreign oil. But many Republicans also want to increase domestic petroleum and natural gas production through expanded offshore drilling, as well as in Alaska and elsewhere to aid that process in the near-term.

David Marks, a spokesman for Senate Energy and Natural Resources Committee Chairman Jeff Bingaman, said the New Mexico Democrat is aware of Dow's concerns and worked to address them in last year's energy bill by co-sponsoring an amendment to create a pilot program for companies to build green facilities that could use coal as their primary feedstock.

"Unfortunately, that amendment was not successful," Marks said. "Sen. Bingaman and other Senate Democrats look forward to continuing to work with Dow, in this Congress and the next one."

Dow shares rose 60 cents to $40.83 in trading Wednesday.