News of the Week
COST-PRICE SQUEEZE LOOMS FOR CHEMICALS U.S. chemical companies rarely stop selling prices by itself does not con- price increases in July. Another round telling customers and the public demn a company to falling profits. of synthetic fiber price increases is about the pressure of increased pro- Furchase costs typically account for slated for September. duction costs and the need for partial only half of a company's total costs of However, the march of purchase compensation through increased doing business. Companies also can costs goes on relentlessly and already product prices. However, given the compensate for relatively greater has gone beyond some chemical ophighly inflationary business climate materials cost increases in part erations' ability to compensate proof the past two years, chemical com- through efficiencies of high plant ca- portionately through price increases. panies have managed quite well to pacity use. Another current help is In synthetic fibers, for example, hold back a genuine cost-price expanding exports. whose fortunes often have been an squeeze, which would have crippled At Celanese, for example, a man- advance warning of business downprofits. agement analysis of second-quarter turns, Celanese's U.S. operations had Recent data from some chemical performance shows that exports were falling profits in the second quarter companies show that the potential for a real cost-price squeeze has greatly increased in the past two calendar Du Pont's cost increases now outpace price hikes quarters. Contrary to the pattern 2ND-QTR 1979 2NP-QTB 1978 throughout 1978, inflation this year % change % change in raw material costs for the U.S. 1967 = 100 Index 3 month 12 month Index 3 month 12 month chemical industry has been running U.S. PURCHASE COSTS far ahead of companies' increases in 7% 25% 255 2% Basic materials 318 5% U.S. product prices. -2 -1 4 212 Chemicals 221 2 For example, Du Font's index se305 1 389 15 28 -5 Hydrocarbons ries on costs and prices shows that the Energy 14 447 7 7 3 510 increase in U.S. purchased materials 15% 261 7% 0% 301 TOTAL .0% costs is running more than double the rate for product price increases. The U.S. SELLING PRICES company's index for total purchased 7 171.6 2 5 3 Chemicals, plastics, and specialties 183.8 materials, including energy, averaged 90.4 1 5 0 Fibers 94.5 3 301 (1967 = 100) in this year's second 4% 135.1 TOTAL 1% 143.6 3% 6% quarter, up 7% from the first quarter and 15% from second-quarter 1978. In its U.S. product prices, Du instrumental in keeping the profits from both the first quarter and from Font's overall index came to 143.6 boost from worldwide price increases second-quarter 1978. The reason is (1967 = 100) in this year's second greater than the penalty to profits not hard to find. Selling prices in the quarter. This is 3% higher than in the from increased worldwide raw mate- second quarter increased 4% from the first quarter and 6% more than in rials and energy costs. "Selling price first quarter and 7% from secondsecond-quarter 1978. increases in all product lines im- quarter 1978. But corresponding raw Celanese's indexes also show, sim- proved income $2.31 per share. Ex- materials price increases for these ilarly to Du Font's, a much greater port and non-U.S. prices contributed periods were 13% and 24%. percentage increase for U.S. materials $1.28 per share, or 55%, of the total Another company, Akzona, reports costs than for U.S. selling prices, even selling price increase." By contrast, that second-quarter profits fell for its though the company got a seasonal the company says, 'Overall, the cost synthetic fibers arm, American Enka. break this spring in energy costs. The increase from raw materials and en- The reason was big increases in costs company's cost index for raw mate- ergy was $1.87 per share." and the beginning of a decline in rials, excluding energy, was 232 (1967 D Celanese also points out that other sales. = 100) in this year's second quarter, types of cost increases, for instance 10% higher than in the first quarter wages and salary boosts, weigh on the and up 20% from a year ago. The scale against selling price increases. Engineers offer aid to company's separate energy cost index However, as with most chemical dropped 2% to 683 (1967 = 100) in the companies, these cost increases are a developing countries second quarter from the first quarter. much smaller influence on profits However, the second-quarter reading than are increases in raw materials When the U.S. delegation sits down was still 10% higher than in second- and energy costs. The basic reason is at the United Nations Conference on quarter 1978. that raw materials and energy ac- Science & Technology for DevelopAt the same time, Celanese's U.S. count for much more of companies' ment Aug. 20 in Vienna, one of the chips they can put on the table is a selling price index rose to 125 (1967 = total cost structure. Despite Celanese and other com- five-part program to mobilize the 100) in the second quarter, 3% more than in the first quarter and 6% more panies' success to date in keeping cost potential 500,000 members of U.S. increases from lowering profits, the engineering societies to transfer than in second-quarter 1978. The mere gap between the rates of rest of the year is far from certain. technology to developing countries. The program, proposed to the increase for U.S..purchase costs and Companies posted large, widespread 4
C&EN Aug. 13, 1979
