Oil price indicates further cost pressures
further as the price of Brent crude oil hits a record $146 a
The rising cost of oil has meant tough times for the cosmetics industry, fueling transportation costs and the cost of raw materials. In just over a year the price of oil has more than doubled, and many analysts predict that there are further rises to come, with some forecasters hedging bets that oil could be $200 per barrel by the end of the year. Already many of the biggest personal care manufacturers are reporting that their profit margins are diminishing due to increased manufacturing costs, compounded by the fact that consumer spending power has also been reduced by the growing specter of inflation. P&G already feeling the pinch At the end of April, the world's biggest consumer goods company Procter & Gamble reported that the bottom line for its beauty sales during the quarter ending in March was affected by rising costs, citing raw materials and energy as the main culprits. At the time P&G said that the cost of sales during the quarter had risen by 9.9 percent, a figure that was only offset by the fact that price increases had been passed on to consumers and overhead cost had been reduced during the period. But how long action like this can be sustained is uncertain, particularly due to the fact that such price rises are now starting to have clear effects on consumer spending patterns in developed markets. This has been underlined by increasing consumer spend on budget and private label personal care products in developed markets, which is undermining the overall value of sales. More price rises on the cards Further price pressures on raw materials are likely to only exacerbate the situation. Indeed the biggest raw ingredients suppliers to the personal care industry, including names such as BASF, ISP, Dow Chemical and Sun Chemicals have already announced a series of price hikes, many of which have exceeded the 10 percent mark. Topping these price increases, ISP announced across the board hikes of up to 20 per cent for cosmetic ingredients that include polymers, biocides and encapsulates at the end of June, citing increasing oil prices as a major reason. This increase was on top of a 5 - 10 percent price increase announced in mid-June to its prices in the European, Middle Eastern and African markets, which was accompanied by a fuel surcharge for the transportation of products. Energy and material costs Speaking of the price hike at the end of June, ISP CEO Sunil Kumar said: "The additional increase is due to the sharp and continued escalation in raw materials and energy costs." With oil prices set to rise still further, it seems that other ingredients suppliers could soon be following suit with dramatic price increases that are likely to match those implemented by ISP. This situation is likely to leave finished goods manufacturers with the dilemma of either passing the price rises on to consumers in a retail market that is looking increasingly soft or else trying to absorb the higher costs. Either way, it looks like a tough ride ahead for all involved.