US Ashland fights 'all-time high' commodities with price hikes

26 April 2011 22:24  [Source: ICIS news]

TORONTO (ICIS)--US-based Ashland is working to recover higher costs for raw materials, including base oil, propylene, cellulose, cotton and other commodities, by increasing its product prices, CEO James O’Brien said on Tuesday.

“We continue to improve our pricing practises to maintain margins” as commodity prices are pushing all-time highs, O’Brien told analysts during the company’s fiscal 2011 second-quarter results conference call.

"As we go into April, May and June ... the challenges we continue to face will be around margin recovery," he said.

Ashland's Valvoline automotive lubricants business would be "particularly challenged", he added.

In that business, Ashland has seen three cost increase in base oil since January – a 25 cent/gal increase effective on 1 January, a 47 cent/gal increase effective on 1 April, and 33 cents/gal effective on 1 May, O’Brien said.

Ashland reacted by announcing product price increases in Valvoline of 8% and 9-11% and will implement further price increases “to fully restore margins”, he said.

“Successfully dealing with cost increases is nothing new for [the Valvoline] business,” he added.

In fact, through 31 March, the business successfully overcame six consecutive cost increases since July 2009 for base oil alone, he said.

Since July 2009, base oil prices increased by more than $1.50/gal, or roughly 65%, resulting in an annualised “headwind” for Ashland of about $200m (€138m), he said.

“Throughout this period, the business recovered its costs, albeit with a typical time lag, and we fully expect this performance to continue,” O’Brien said.

In Ashland’s fiscal 2011 second quarter ended 31 March, Valvoline saw gross profit margin fall to 29.3%, down 370 basis points year on year and 160 basis points from the preceding fiscal first quarter, because of the 25 cent/gal base oil cost increase effective on 1 January.

In related news on Tuesday, ICIS reported that US domestic base oil demand is outpacing supply, fostering extremely tight market conditions.

($1 = €0.69)

For more on Ashland and other producers visit ICIS company intelligence

By: Stefan Baumgarten
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