June 25th, 2008
Dow price hikes and plant closures
Dow price hikes & plant closures : Plastics News report. John Whitehead 25.06.08
Dow has introduced a number of measures in response to the accelerating economic slowdown and escalating feedstock cost spiral. In a statement from Midland HQ in Michigan yesterday, the company announced price increases of, “as much as an additional 25% in July” to offset rising costs. The initiative follows one dated 28 May which, according to CEO Andrew Liveris, “helped but were not enough to fully cover the additional costs we are now facing.”
The group also plans to take 40% of its European styrene monomer capacity off-stream, reduce polystyrene output rates in Europe by 15% and temporarily idle 20% of its European capacity for Styrofoam insulation. Dow is also cutting ethylene oxide production by one quarter worldwide, slashing acrylic acid production in North America by 30% and cutting back its Dow Automotive business with a combination of sales and shutdowns, “in light of a serious decline in North American automotive sales.”
Liveris called the moves, “extremely unwelcome but entirely unavoidable as the global cost of oil, natural gas and hydrocarbon derivatives surge ever higher.” Over the past five years, Dow revealed, its bill for hydrocarbon feedstocks and energy has surged four fold from $8bn in 2002 to $32bn this year.
Comment: Dow drastic price and volume initiatives are symptomatic of the new business environment impacted by the credit and energy crisis. Price hikes and production reductions are the best ways for producers to defend their margins, before announcing cost cutting initiatives.