Price increases kept pace with rising feedstock costs

Profits at Dow Chemical’s plastics businesses have soared in the second quarter as strong demand for its products has allowed price increases to be pushed through.

Earnings before interest and tax in the Performance Plastics segment were 64% higher than the same period last year at $286m (E237m), while Plastics sector’s EBIT rose 73% to $399m (E332m). Sales in the respective sectors grew 20% and 24% in the same analysis.

Margins in the Plastics sector would have been higher but for the spiralling cost of benzene. However, price increases largely kept pace with rising costs, Dow said.

Chief financial officer Pedro Reinhard said: “Improving global economic conditions generated significant volume increases this quarter. Dow saw further steep rises in feedstock and energy costs – which climbed 21%, or more than $600m compared with the same period in 2003.

“But improving industry fundamentals allowed for broad-based price increases, leading to modest margin expansion. Favourable business results, combined with a strong performance by Dow’s joint ventures, led to a significant improvement in earnings.”

Corporate director of investor relations Kathleen Fothergill said work at Dow crackers had affected the internal price of ethylene. “While PE margins expanded compared with last year, margins for both PP and PS contracted as price increases could not match the higher feedstock costs. The margin squeeze was mitigated by strong volume gains for both of these polymers, particularly in Europe.”