Dow Chemical price hikes ‘symbolic’ - JP Morgan

27 June 2008 16:36  [Source: ICIS news]

TORONTO (ICIS news)--Dow Chemical may find it hard to realise its recent across-the-board price hikes as it participates in many commodity and semi-commodity businesses where it does not wield pricing power, JP Morgan said in an research note on Friday.

 

“We believe that the price increase announcements have something of a symbolic character,” the analysts said. “We read the announcements to mean that Dow will increase prices sharply and quickly where it can.”

 

Dow in May announced a sweeping 20% price increase for all products, followed by another 25% increase announced on Tuesday, to offset soaring energy and feedstock costs.

 

The JP Morgan analysts forecast Dow’s sequential increase in second-quarter feedstock and energy costs at between $900m (€567m) and $1bn.

 

The company would need about a 7% sequential price increase to offset the full raw material effect, they said.

 

“That level of increase is unlikely for all of the splashy price announcements,” said JP Morgan.

 

Dow would do well to achieve a 5% sequential increase, but the price increase might well be lower, it added.

 

JP Morgan reduced its 2008 and 2009 profit estimates for Dow Chemical to better reflect lower margins due to higher raw material costs and slower demand in construction and durable goods markets, it said.

 

The analysts cut their 2008 estimate for Dow’s earnings per share (EPS) to $2.90, from $3.25, and to $3.10, from $3.20 for 2009.

 

($1 = €0.63)

 

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By: Stefan Baumgarten
+1 713 525 2653

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