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Oil prices hit chemicals groups
German chemicals makers on Wednesday provided stark examples of the risks of high oil prices for themselves and consumers.
The rising cost of oil, which forms the basis of chemical production, squeezed their profits this spring and the companies vowed to pass the burden on to customers in the coming months.
BASF, Altana and Henkel, which all reported second quarter results on Wednesday, said they would have to push through price rises for everything from bulk chemicals used to make plastics, specialities such as food additives, to consumer goods such as glue in order to meet full-year forecasts.
The earnings reports came as the European Commission said prices charged by industrial producers in the eurozone had risen 5.8 per cent in the year to June – a sign energy costs are seeping down the product chain.
Concerned by signs that prices in the 12-country currency area are increasing too quickly, the European Central Bank's governors will meet on Thursday, with most economists expecting a rise in the cost of credit by 25 basis points to 3 per cent.
Central bankers have drawn some solace from the fact that consumer prices are rising relatively slowly, though July's 2.5 per cent annual rise is above the 2 per cent level they deem safe.
"But producer prices show inflationary pressures really are building up," said Howard Archer at Global Insight. "The ECB is worried about consumer prices – and producers flagging more price rises is the last thing it needs."
BASF, the world's biggest chemicals group, blamed "significantly" higher raw material and energy costs for dragging down second quarter earnings at three of its four chemicals units. Its oil and gas unit saw profits jump.
This helped overall earnings before interest and taxes rise 15.3 per cent to €1.9bn. Sales rose 16.5 per cent to €12.3bn. Full-year results would also come in "significantly" higher than those reported last year, the company said.
Jürgen Hambrecht, BASF chief executive, said his company had passed some price rises on to customers. "But the closer products are to the consumer, the longer this takes. That's why we'll have to raise prices again in the coming months."
Deodorants to soaps maker Henkel also said price rises could be passed down. It said its adhesives unit would likely see further raw material prices rises. "We . . . intend to respond . . .  with further price increases of our own."
Second quarter earnings before interest and taxes rose 21.2 per cent to €359m. Sales grew 7.3 per cent to €3.2bn. The group said new products and price rises had stabilised gross margins at 45.9 per cent, the same as in the first quarter.
Chemicals and drugs group Altana warned "unabatedly high raw material" costs could counter gains from economic growth at its chemicals unit. But it signalled higher volumes coupled with price rises had driven sales up in spring.
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