Beyond gasoline: Prices surge for oil-based goods

Some consumer-products companies are starting to pass on higher energy costs to consumers.

By , Staff writer of The Christian Science Monitor

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    Morning rush-hour traffic in downtown Portland, Ore. Besides gasoline, the Department of Energy calculates there are 57 major uses of petroleum.
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Besides gasoline, the Department of Energy calculates, there are 57 major uses of petroleum – everything from cosmetics to ballpoint pens, nylons, and even the waxes in chewing gum.

That is why the effect of high oil prices is now spreading well beyond the pump, where gasoline hit another record price of $3.98 a gallon on Wednesday. Now, consumers will have to brace themselves for other higher costs, since businesses such as Kimberly-Clark, Procter & Gamble, and Colgate-Palmolive are raising prices on their products to recoup energy costs.

In brief, this means less money in consumers' pockets in the months ahead. But it also goes beyond consumers. For example, the price of asphalt is up 65 percent so far this year – and municipalities' and states' road departments are cutting back. This may mean bumpier roads ahead.

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"Not quite half of what we consume is energy, food, and other commodities that are significantly affected by the rising cost of petroleum," says Mark Zandi, chief economist at Moody's Economy.com.

On a year-over-year basis, energy prices are up 15.5 percent. Much of the most recent surge in oil prices has yet to be factored into consumer prices. But anecdotal signs are emerging that companies can no longer absorb the higher energy costs.

Last week, for example, Dow Chemical announced a 20 percent across-the-board price increase on its products, which range from antifreeze to cleaning fluids to pharmaceuticals.

Similar moves are expected. "It's just the tip of the iceberg," says Ann Paulins, director of the School of Human and Consumer Sciences at Ohio University in Athens. "The retailers can't absorb it all."

Groceries

That sentiment is echoed by Wegmans, a grocery chain based in Rochester, N.Y., that normally tries to keep price increases to a minimum. Now, however, prices are rising on nearly every shelf.

"We're talking increased raw materials, packaging, transportation, the whole ball of wax," says Jo Natale, a spokeswoman. "We have tried to absorb as many increases as possible to remain competitive, but we have reached the point where retail prices have to go up."

Late this spring, the CEOs of some major consumer-products companies also said they had to start to recoup higher energy costs.

"Through the retailer, they have to pass on to consumers their higher costs," says Ali Dibadj, a securities analyst at Sanford C. Bernstein and Co. in New York. "The price increases are ranging from 4 to 6 to 10 percent."

On April 30, Clayton Daley, chief financial officer of Procter & Gamble, told securities analysts that the company expects to incur about $1.4 billion in higher energy costs this year.

Between May and August, he said, the company would raise prices 4.5 percent on Always and Tampax products, 7 percent on Crest Pro-Health Rinse, 6 percent on Dawn, 8 percent on Swiffer refills, and 11 percent on Oral-B power brushes and refills.

One day later, Larry Peiros, chief operating officer of Clorox, told securities analysts that the company had already raised prices on a number of brands. It had already announced a 13 percent price increase in May on Pine-Sol cleaner.

Later in May, Kimberly-Clark, which makes diapers under the brand name Huggies, said it is increasing prices by 6 to 8 percent from mid-July to late August. The company already increased prices by 4 to 7 percent in February.

On the streets of New York, a mother, Rachel, pushes her two children Daisy and Dillon in a tandem stroller. She thinks some of the companies are reducing the number of diapers in each box, even if the price is not rising. "Everything is going up," she moans.

Even if the prices are not up now, some consumers expect them to rise soon. That's the case with Marc and Silke Lugert of Ottawa, as they push 1-year-old Marla in her stroller around Columbus Circle in New York. "In the next six months, prices will rise," says Mr. Lugert as he holds the hand of his other daughter, 4-year-old Paula.

It's not just the grocery shelves being affected by rising energy costs. To find other price hikes, one need look no further than the road.

Asphalt

The price of asphalt, according to contractors, is up about 65 percent so far this year. Another 10 percent price increase is expected in the next two to three weeks.

The paving material is rising in price in large part because liquid asphalt comes directly from crude oil that's been refined. Asphalt is what is left over after the refiners have made gasoline, kerosene, and other products. It is dense and dirty.

The asphalt business has undergone some changes as the price of oil, as well as diesel, has increased. A growing number of refiners are adding special units that can refine this dense oil into diesel and jet fuel. At the same time, refiners are selling more low-grade oil to ocean freight companies, whose business is booming as US exports rise. The end result: more competition for less supply.

"They are talking shortages in Minnesota," says Steve Hall, CEO of Hardrives Inc., a contractor in Minneapolis. The situation has become so uncertain that asphalt suppliers won't quote prices yet for next year.

State contracts

States are reacting to the higher prices, highway contractors say, by reducing the number of jobs that had been planned. "They are trying to stretch their dollars as much as they can," says Patrick Nelson, special projects manager at Lehman-Roberts Co. in Memphis, Tenn.

Mr. Nelson's company has only one state job to bid on in Tennessee as its Department of Transportation has cut back, he says. If his company bids on the project, he says, it will include an escalation clause to pass on the rising prices.

To stretch dollars, Nelson says, states are resorting to thinner pothole patches and "micro-seals" that wear out faster. "It will catch up with the states," he says.

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