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Energy Costs Prompt Dow Chemical To Raise Prices Additional 25 Percent

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By JAMES PRICHARD

The Associated Press

Published: June 25, 2008

GRAND RAPIDS, Mich. - Shares of several chemical companies fell Tuesday after industry leader Dow Chemical Co. announced its second set of wide-ranging price increases in less than a month, again trying to offset record costs for energy and raw materials.

Midland-based Dow said it will raise the prices of its products by as much as 25 percent in July, after it implemented across-the-board price increases of up to 20 percent on June 1.

The company makes a wide swath of products, such as the propylene glycols used in antifreeze, coolants, solvents, cosmetics and pharmaceuticals; and the acrylic acid-based products used in detergents, wastewater treatment and disposable diapers. Its products are sold in 160 countries.

When Dow raises prices, the increase is felt across dozens of industries that buy its chemicals and plastics to manufacture products ranging from diapers to automobiles.

Dow says it is trying to survive. Competitors such as Philadelphia-based Rohm and Haas Co. and Dallas-based Celanese Corp. also have recently raised prices.

"We have to get them back to reinvestment levels where we can continue to build our business and to be there for the future," Dow spokesman Chris Huntley said.

The chemical maker's 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.

For North American customers, Dow says it is also adding a freight surcharge of $300 per shipment by truck and $600 per shipment by rail, effective Aug. 1. Those surcharges will spread to other regions later this year.

Meanwhile, the company is idling or reducing production at some manufacturing plants and taking unspecified cost-cutting measures at its automotive plants that have been hurt by a dreadful year for U.S. automakers.

The company had not yet worked out the details of its cost-cutting plan, Huntley said, "but it will certainly involve some people reductions, it will involve looking at how we can reduce costs around facilities, overhead and the external spending component."

Dow has automotive facilities in Michigan and across the United States, as well as overseas.

Chairman and chief executive Andrew Liveris said in a statement that the steps are "extremely unwelcome but entirely unavoidable" as global energy costs surge.

"The price increases we announced May 28 helped, but they were not enough to fully cover the additional costs we are now facing," he said. "Even since our last announcement, the cost of hydrocarbons has continued to rise, and that trajectory shows no sign of changing."

Spokesman Huntley, repeating pleas Liveris made last month, said leaders in Washington must immediately create a comprehensive energy policy that includes more domestic drilling for oil and natural gas, more money for alternative energy research and greater emphasis on efficient energy use.

"Dow has improved its energy efficiency by about 25 percent since 1995, and it's targeting 25 percent again between now and 2015," Huntley said. "We've set targets and yet it seems that across industry and consumers and commerce as a whole, there's a reluctance to really drive the sector into efficiency, which is a key component to getting this right."

Dow would not say whether more price increases are imminent.

"If our costs continue to climb, then clearly we're going to have to raise prices," Huntley said.

Dow shares fell $1.04, or 2.8 percent, to close at $36.58 Tuesday.

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