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Oil costs continue to pressurise speciality chemical prices

By Simon Pitman , 11-Oct-2005

The effects of hurricane Katrina are continuing to affect the speciality chemicals industry worldwide as major players announce a succession of price hikes that will affect costs of both packaging materials and personal care ingredients.

Citing dramatic increases in operating costs, brought about by rising transport, freight and manufacturing costs, the leading chemical players have been busy announcing price increases on a variety of chemical-based products that are commonly used to both package and formulate personal care products.

Many of the chemical companies claim that they have been caught in the middle of global price pressures. While the price of crucial chemicals - many of which are derived from oil - have sky-rocketed, the speciality chemical companies claim that they have been locked into the hikes as major cosmetic companies fight to resist the price increases being passed on.

In a presentation given to the US Senate Committee on Energy and Natural Resources last week, Andrew Liveris, president and chief executive officer of The Dow Chemical Company, said that the continued hike in oil prices was having a serious impact on the competitiveness of the industry as a whole, and in particular on the industry in the US, where oil price hikes have been particularly high.

"This renders the US chemical industry - which uses natural gas as both a fuel and a raw material - simply uncompetitive with the rest of the world," he said.

Liveris added that Dow and other chemical manufacturers have been forced to take immediate action to contain the impact of high and volatile energy and feedstock costs. This has led to cost-cutting measures, focusing on energy efficiency & conservation, shutting down inefficient plants, and investing in regions of the world such as China and the Middle East, where energy is more affordable.

But such measures have not proved enough to absorb the current record oil prices and in the course of this month it has been necessary to introduce a spate of price increases that will affect a host of industries, including the major cosmetics and toiletry makers.

Price rises have averaged the 10 per cent mark, and have affected a wide variety of chemical-based products, many of which are used in the production of cosmetics and toiletries. Chemical companies that have announced price hikes have included Sun Chemicals, Dow Chemical, National Starch & Chemical Company and Eastman Chemicals.

Most of the speciality chemical companies claim that the price hikes are the result of around 18 months of price rises that have been squeezing margins to the upper limits. They say that hurricane Katrina, which was closely followed by the disruption of hurricane Rita, has been the final straw.

The latest round of resulting oil price hikes has meant that the speciality chemical companies have finally buckled under the pressure and pass on the increases to their customers. How cosmetic companies react remains to be seen.

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