Dow Chemical's CEO and Chairman Andrew Liveris Talks About His Company's Price Hike
Tuesday, June 24, 2008SUZANNE PRATT: Dow Chemical is hiking prices for the second time in a month in response to soaring energy prices. Earlier today I spoke with Dow Chemical's CEO and Chairman Andrew Liveris. I began by asking him why Dow was raising rates again, so soon.
ANDREW LIVERIS, CEO, DOW CHEMICAL: This is and the surge in hydro carbons, of course, oil prices headline value since late May when we announced the previous increases has continued unabated not just in oil price but also in derivatives of oil which we use to make value added products. Naptha which is a very basic raw material for petro-chemistry and chemistry has surged continually since the late May time frame. So really what we're saying is that this surge has to be passed through and frankly part of that announcement today was to actually take some assets down and idle them because they cannot run at these feedstock costs.
PRATT: I imagine that you have discussed some of these price increases with your best customers ahead of time. And there were also some freight surcharges that you are bringing in about a month or so. What kind of feedback are you getting from these customers?
LIVERIS: Well, I guess second time around, it's yet again different. I mean, the first time around, may have had some shock value, although frankly, we have been raising prices for the last several years. You know, really, we're living in a world of surge. The late May price increases followed by these, this go-around the customers are -- let's call it they're not happy, but they understand the need for it and frankly, all the headline value on gasoline price and oil price, they understand. They're consumers as well. Now, it's not easy for them. But we're offering lots of things including going with them to their customers to explain why a reset in the value chain is so important. We're all in this together. I mean ultimately, this has to go through the consumer, to take into account this new level of oil and gas price that the world seems to be tolerating.
PRATT: Now, you mentioned that you were going to be idling some plants because of the slowdown in economies in Europe and in the U.S. In your opinion, is the U.S. in recession?
LIVERIS: Well, you know, I think everyone -- every economist out there and I'm not one of those -- I mean, as played with the "R" word a lot in the United States. I don't care what you call. I think demand is anemic in auto and housing and the consumer is starting to pull back. But just to clarify, the turn (ph) down in plants, the idling of plant capacity globally specifically in the United States and Europe is as much to do with the fact that we cannot run those plants at high input costs and make money at the current pricing. So yes, there is some weakness in demand in the U.S. and Europe and that weakness is accelerating. It's getting worse. But at these input costs, you can't run those assets and make positive cash margin. That's why we are turning the plants back, the ones we announced today.
PRATT: As you know, the Federal Reserve is meeting in Washington to discuss interest rate policy today and tomorrow and there's expected to be an announcement. Do you think a hike in interest rates if that were to come, maybe not at this meeting, but at a future meeting would help with the inflation problem in this country right now?
LIVERIS: Well, I think that's the only thing monetary policy can do whether it's here or overseas. Frankly, there's very few levers left and that's the only one. You really got to look at the whole interest rate thing as saying it went down all the way down to really help the financial crisis. Now that this energy crisis is affecting consumers and sheer wallet is affecting demand. People aren't spending. People aren't driving. Really, you need to look at ways to control what's happened in the inflationary world and really take the risk that by raising rates, you may actually cause some demand to go week weaker. I think it's back to where Paul Volcker was in the early '80s. There's a real risk here and we've got stagflation. You can only break out of it one way and you better take on inflation head-on.
PRATT: OK. I think we have to leave it there. Thank you for joining us.
LIVERIS: My pleasure, Suzanne, thank you.
PRATT: My guest, Andrew Liveris, chairman and CEO of Dow Chemical.
