InterviewRohm and Haas sees surcharges as trend

08 May 2008 23:05  [Source: ICIS news]

By Joseph Chang

NEW YORK (ICIS news)--The specialty chemical industry will move towards a new pricing mechanism across the board of implementing monthly energy and raw material surcharges to deal with volatile costs, the new president of Rohm and Haas Pierre Brondeau said on Thursday.

“We are the first one in the specialty chemical industry to do this, but we think this will eventually be the way business is done in this industry,” Brondeau told ICIS in an interview. “We don’t see any other way to do business in light of the lack of predictability of raw materials.”

Rohm and Haas on 29 April announced it would add a monthly indexed raw material and energy surcharge to products in its $4.9bn (€3.2bn) specialty materials business, which encompasses paint and coatings materials, packaging and building materials, and primary materials, starting in May.

“We cannot for any longer try to play the guessing game of where raw materials will go,” said Brondeau. “We’ve been trying that for a year and a half now and have been wrong every quarter. I do not know anyone in the industry who is capable of forecasting raw material prices.”

The action will cover over 80% of the segment’s products on a sales basis, said Brondeau.

The monthly surcharge would adjust on a product-by-product basis, and customers would have full transparency on the index, he added.

The first surcharge in May would represent roughly a 6-9% price increase for paints and coatings materials and 6-8% for packaging and building materials, said Brondeau.

The primary materials business already has about 80% of its business indexed to raw materials on a quarterly basis and those will remain so, he added.

As its raw material costs rise or fall on a monthly basis, Rohm and Haas will attempt to pass them along to customers on a monthly basis.

“When the cost increases are as big as they are today, we believe this is the fairest way for our customers and for us,” Brondeau said.

The top 11 raw material and energy components will be indexed based on data from ICIS, CMAI and the London Metals Exchange (LME).

They include propylene, oil, natural gas, butanol, ethanol, methanol, acetone, acetone cyanohydrin (ACH), ammonia, vinyl acetate monomer (VAM), styrene, butadiene and tin.

In the first quarter, Rohm and Haas’s specialty materials business posted a 12% decline in operating profits to $136m on higher raw material and energy costs.

Rohm and Haas’ raw material and energy costs could increase by $500m in 2008 versus 2007, Brondeau said.

Brondeau was appointed president and chief operating officer on 5 May.

For more on Rohm and Haas visit ICIS company intelligence

To discuss issues facing the chemical industry go to ICIS connect

 

By: Joseph Chang
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