The Dow Chemical Company announced in the US on Tuesday that it will raise the price of its products by as much as an additional 25 percent in July in an effort to offset the continuing "relentless rise" in the cost of energy and hydrocarbon feedstocks. The 25 percent hike — the largest in the company’s history — comes after a 20 percent rise last month that the company said did not go far enough given the continuing surge in energy prices. Also on Tuesday, South Korean company Posco, one of the world’s largest steel producers, said that it was raising prices by more than 20 percent. That followed an agreement Monday between the global mining company Rio Tinto Group and the biggest steel maker in China, Baosteel, to raise the price Baosteel pays for Australian iron ore by as much as 97 percent.

“Inflation is here big time,” Charles Holliday, chief executive of the chemical giant DuPont told the Financial Times, adding that companies such as DuPont faced “tremendous cost pressures” and had the “obligation” to raise their prices to offset higher costs.

Producer prices in the United States rose 7.2 percent in May while Eurozone factory gate prices rose 6.1 percent in April. Chinese producer prices are rising at close to a 12 percent annual rate.

According to the New York Times, economists say the $664 billion chemical industry has been among the hardest hit by soaring energy prices. Every $1 increase in crude oil prices costs the industry $660 million a year, said Kevin Swift, chief economist at the American Chemistry Council.

Dow Chemical, a maker of products ranging from pesticides to plastic wraps, said on Tuesday that in addition to the price hike, it will implement a freight surcharge of $300 per shipment by truck and $600 per shipment by rail, effective August 1.  The surcharge applies to North America customers buying chemicals, hydrocarbons and plastics where Dow absorbs the freight currently (“seller absorbs freight”).  Later this year a freight surcharge will be implemented in other geographic regions as appropriate.

Furthermore, Dow said that it is moving ahead with plans to temporarily idle or reduce production at a number of manufacturing plants.  Dow has reduced its ethylene oxide production worldwide by 25 percent, and idled 30 percent of its North America acrylic acid production. The Company also will idle 40 percent of its European styrene production capacity, and has reduced its European polystyrene production rate by 15 percent. These actions are due to the slowdown in the U.S. and European economies, and the recent surge in hydrocarbon feedstock costs.

In light of a serious decline in North American auto sales, Dow’s Automotive unit is announcing a series of cost reduction measures covering facilities, people and external spending.  In addition, the business is in the process of divesting its paint shop sealer business and is implementing plant consolidations resulting in the closure of three production units.

In addition, Dow Building Solutions temporarily idled 20 percent of its European capacity for producing STYROFOAM insulation.  Earlier this month, the company announced plans to idle three Dow Emulsion Polymers plants representing 25 percent of North America capacity and 10 percent of European capacity.  These reductions were directly related to declines in the housing and consumer sectors, as well as rising costs.

Andrew N. Liveris, Dow chairman and CEO, described the steps as “extremely unwelcome but entirely unavoidable” as the global cost of oil, natural gas and hydrocarbon derivatives surge ever higher.

“The price increases we announced on May 28 helped, but they were not enough to fully cover the additional costs we are now facing. For the first half of 2008, our feedstock and energy costs are up more than 40 percent compared with the same six months of last year. Even since our last announcement, the cost of hydrocarbons has continued to rise, and that trajectory shows no sign of changing,” he said.  “We must restore margins in our businesses, both through price increases and the reduction of operating costs at certain production facilities.

“We’re continuing to do all that we can to tackle this issue on multiple fronts. We improved energy efficiency by 22 percent from 1995 to 2005 and are targeting another 25 percent by 2015. We’re cutting costs significantly. We have an array of efforts around alternative energy and alternative feedstocks.  We’re making great progress in the implementation of a strategy that will address the issue over the medium to long term. But the staggering increases in our costs over the past few months have forced us to take these further measures in order to restore our margins.”

Over the past five years, Dow’s bill for hydrocarbon feedstocks and energy has surged four-fold, from $8 billion in 2002 to an estimated $32 billion-plus this year.