Ingredient costs leap as oil prices hit record high

Specialty chemicals firm Croda revealed this week in its full year results that the average price of the company's products increased 12.3 per cent last year. Cost inflation​ In a presentation to investors, the maker of ingredients for leading personal care manufacturers displayed graphs tracking the price evolution of several key raw materials including ethylene and soya. The graphs show a steady increase in prices from 2003 followed by a sharp rise from mid-2006. In the last year the cost of most of the tracked ingredients increased by over 50 per cent putting significant pressure on Croda's margins. The high price of oil is the principle factor behind the rising cost of raw materials because it not only affects the price of petrochemical ingredients but also the energy and transportation costs in the production of other ingredients. Rising prices ​ Ingredients suppliers have generally been able to pass on the rising cost of oil to finished goods manufacturers. Croda for example increased its prices by an average of 12.3 per cent last year prompting a decrease in sales volume of only 9.2 per cent. The company said some customers had accepted as many as five price increases since November 2006. Another supplier to have increased its prices significantly of late is Rohm and Haas. Citing rising raw material, freight and energy costs, the Philadelphia-based company announced last month that it was increasing the prices of its personal care polymers and preservatives by between 5 and 10 percent. Finished goods manufacturers​ While ingredients suppliers have been able to increase their prices, competition is so fierce in the market for finished goods that cosmetics manufacturers have been forced to absorb the increased cost of ingredients. Procter & Gamble, Colgate-Palmolive and Kimberly-Clark all mentioned high oil prices as a factor that had a negative impact on their profits in recent financial statements. Japanese-based Kao recorded a reduction of 7 per cent in operating profits for the first nine months of 2007. The cosmetics manufacturer attributed the fall to the increased costs of petrochemical, natural oils and fats used in its formulations.