Dow Chemical Co. may continue raising prices after implementing consecutive record increases because of surging raw material and energy costs, chief executive Andrew Liveris said.
Dow, the largest US chemical producer, disclosed price increases yesterday of as much as 25 percent effective in July. A 20 percent increase for June resulted in "double-digit" price gains, Liveris said. He said prices for some products will be as much as 35 percent higher after the two increases.
"We are facing margin contraction even with those kinds of numbers," Liveris said from Dow headquarters in Midland, Mich. "We may have to go out with more price increases."
Dow is also implementing a shipping surcharge and closing plants in North America and Europe because of weak demand and rising energy and raw-material expenses. Declining demand may prompt Dow to close even more factories, particularly in higher-cost regions such as the United States, Liveris said.
"The US and Europe are going to be very, very weak for the remainder of this year," Liveris said.
"This is what they need to be doing," said Steve Hoedt, who helps manage $34 billion, including Dow Chemical shares, at National City Corp. in Cleveland. "All the companies that have petroleum as a major input cost have needed for quite a while to pass along the higher raw-material costs to their customers."
David Begleiter, a New York-based analyst at Deutsche Bank AG, reduced his second-quarter and full-year earnings estimates for Dow because of rising costs and "signs of demand destruction in the US."
"We expect earnings to remain pressured as pricing struggles to catch up with escalating ethane prices," Begleiter said.
Costs for energy and oil and natural-gas derivatives have surged fourfold in five years to an estimated $32 billion this year, Dow said. That would be a 30 percent increase from 2007, when sales totaled $53.5 billion.
"The staggering increase in our costs over the past few months have forced us to take these further measures in order to restore our margins," Liveris said in a statement.
Dow said its freight surcharge will add $300 per truck shipment and $600 per rail shipment as of Aug. 1.
The company's cumulative price increases since May approach 50 percent, Kevin McCarthy, an analyst at Banc of America Securities, said in a report. Dow's 3,200 products are used in thousands of consumer products, including diapers, sneaker soles, carpets, and plastic bottles.
Dow plans to idle 20 percent of capacity for making Styrofoam insulation in Europe and to shut three factories that make emulsion polymers, used in paints, adhesives, and carpets. The emulsion plants represent 25 percent of Dow capacity in North America and 10 percent in Europe.
Three factories in the Dow Automotive unit will be permanently shut because of declining North American sales, the company said. Details on specific plant closures, job cuts, and related charges haven't been determined, said a company spokesman.