Industry feels energy squeeze

By JIM SUHR The Associated Press DETROIT - No need to tell Dow Chemical Co. how mounting energy costs can zap the bottom line.

Over this year’s first three months, the Midland, Mich.-based company shelled out $600 million more for energy and petroleum feedstock for its chemical, plastics and agricultural products.

Along the way, Dow managed only $80 million worth of offsetting price hikes and briefly cut output at some North American plants because sales didn’t cover costs.

‘‘There is no question that the stubbornly high oil prices and unprecedented North American (natural) gas prices are currently battering our industry,’’ Michael Parker, Dow’s president and chief executive, told investors recently.

Other companies large and small are finding volatile energy costs a profit-squeezing nemesis in a weak economy. Intense competition limits their ability to pass along the costs to consumers, so to cope, many have tightened their belts, often by slashing jobs.

‘‘If you raise prices at time when demand is falling, you put yourself out of business,’’ said Gordon Richards, a National Association of Manufacturers economist.

A parade of industry giants - Kimberly-Clark Corp., Honeywell International Inc. and International Paper Co., among others - have joined Dow in blaming energy costs, at least partly, for lackluster earnings.

At appliance maker Whirlpool Corp., production-related electricity costs this year have been relatively flat from 2000, though the expense of natural gas has jumped about 25 percent, spokesman Tom Kline said.

‘‘It’s a slugfest out there,’’ he said, adding that protecting market share pretty much precludes raising prices on Whirlpool products. ‘‘We have to focus on the reality that it’s a competitive playing field.’’

In Mead, Wash., Kaiser Aluminum Corp. found it more profitable to close its electricity-intensive smelter last fall and instead peddle their power. Most of the 10 aluminum smelters in the Pacific Northwest have followed suit.

Last year Goodyear Tire & Rubber Co. on average paid $1.40 more than in 1999 to produce each of its 225 million tires, spokesman Keith Price said. In the first quarter of 2001, Goodyear’s bill for oil and other raw materials rose another 3 percent, he said.

A few months ago, he said, Goodyear and its competitors raised by 3 percent to 8 percent the prices of tires sold to retailers.

‘‘Getting price increases in this business is very difficult,’’ Price said. ‘‘Traditionally when the market softens, companies back off pricing to keep their market share.’’

In Iowa, Amana Appliances has ratcheted down its use of natural gas by doing such things as running curing ovens for longer periods at lower temperatures, spokesman Russ Maheras said. Amana also has kept electricity costs in check with a long-term contract.

Richards, of the manufacturing trade group, said service-related firms were more likely to raise prices to recoup higher energy costs.

Lately, businesses from dry cleaners to athletic clubs have raised prices or encouraged conservation measures, including asking gym members to use only one towel to help trim energy use.

Not all of the surcharges have gone unnoticed, as Kaiser Aluminum found. That company bowed to customer complaints and stopped charging an additional two cents for each pound of aluminum, spokesman Scott Lamb said.

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Answers

How can anybody read this and say a recession is not about to occur?

-- Loner (lone@bigfoot.com), June 02, 2001.

With so many aluminum companies in the Northwest closing up shop, why doesn't this, alone, portend a recession?

-- Qman (qman@c-zone.net), June 02, 2001.

What constantly baffles me is why is Wall Street SO SLOW to catch up with what's REALLY going on in the economy? To me, it's clear as glass: coming recession (or--let's hope not--maybe more). The Dow is still hovering around 11,000.

None of this makes any sense at all to me. The Stock Market should have tanked at least 4 months ago.

-- JackW (jpayne@webtv.net), June 02, 2001.

The soft landing theory still predominates among Invest0rs, I think. This is clearly reflected in the bond market, where 30-year rates stubbornly refuse to chase Greenspan's interest rate cuts downward, which would be the usual case. Mortgage rates, too, are staying unusually high.

For some reason, Wall Street still seems to think that inflation is a bigger immediate threat than recession. I think a lot of surprises are in store for investors. Soon.

-- Wellesley (wellesley@freport.net), June 02, 2001.