Management Accounting

Chemical Reaction: Oil’s Ripple Effect

Hefty price hikes by suppliers like Nalco, Dow, Huntsman, and Kodak reflect the impact of energy costs and raise fears of sharp inflation.
Stephen TaubJune 2, 2008

As surging oil prices causing companies in a variety of industries to raise prices — often substantially — inflation fears are starting to feel a lot like those of the 1970s.

Perhaps the most aggressive price hikers recently have been chemical companies, those large users of energy products. But next, of course, will come more price hikes by chemical users. Last week Dow Chemical said it would raise prices by 20 percent. And today Nalco Co., a provider of integrated water treatment and process improvement services, chemicals, and equipment programs for industrial and institutional applications, made its move.

Nalco said that it would increase North American prices to the paper industry on July 1, with price increases in other regions to follow. Each regional increase will reflect local cost growth, Nalco said. Customers in the U.S. and Canada will see a tiered price increase by Nalco, with pricing for most products rising up to 20 percent. However, other lines, including the use of defoamers, gluteraldhyde, phosphate and polyphosphate chemistries, pulp mill surfactants, antiscalants, and pitch control surfactants, will increase 30 percent.

Drive Business Strategy and Growth

Drive Business Strategy and Growth

Learn how NetSuite Financial Management allows you to quickly and easily model what-if scenarios and generate reports.

“These price increases are driven by increased energy and raw material costs, tightening availability of some raw materials and rising freight costs,” the company said in a press release.

Chemical maker Huntsman said it will raise prices for all products by as much as 25 percent in response to sharp and sustained increases in its costs for energy, commodity and intermediate feedstocks, and transportation. It also said it will impose an energy surcharge across a wide range of products. The amount of each price increase and energy surcharge will vary by product, based on the costs attributed to each product, the company stressed.

“We hope we have seen the worst of the energy and commodity price increases, but the impact of large scale speculation by traders on the price of energy, in addition to the increased costs we are absorbing from our raw material suppliers and service providers, cannot be underestimated,” said president and CEO Peter Huntsman. “Having implemented aggressive internal steps to manage these costs, we are now reviewing all Huntsman products and are announcing specific price increases, as well as an energy surcharge to be applied to each product where warranted.”

Eastman Kodak also announced that it would increase prices on a select range of consumable products across its businesses on a worldwide basis by as much as 20 percent. It too cited soaring prices of key raw materials, especially silver and aluminum, as well as the rising cost of petroleum.

Kodak, on May 1 had noted the prospective impact of these raw material costs during a conference call with investors, after announcing its first-quarter results, said the increases will be rolled out by product group and geography in the coming weeks. They are all expected to be implemented by July 1.