High Energy Costs Add a €1 Million Burden for DSM Composite Resins

08 January 2007

David Westaway reports on the effect that increasing energy prices are having on Europe’s largest structural resin producer.

Worldwide marketed energy consumption is projected to grow by 71 percent between 2003 and 2030, with the highest growth projected for the developing countries. Oil will remain the most important energy source, but a tight demand / supply balance is expected over the period that will keep prices high. Crude oil prices rocketed past $75 per barrel in early July which is bad news for every manufacturing sector, but especially for the resin industry relying, as it does, on oil-based products as feedstock.

In terms of natural gas, without new capacity investments in gas supply, a demand gap is imminent – at the same time European electricity markets security of supply is threatened by poor interconnections and the low level investment in power generation over the last two decades. All these factors put added pressure on the chemical industry, in general, to remain profitable and sustainable.

“The high cost of energy impacts directly on resin producers”, says Dominique Cornée Leplat, Purchasing Manager for Europe’s largest structural resin producer, DSM Composite Resins. “As a direct result we have seen our costs increase by just over 1 million euros over the last twelve months.”

“Industrial electricity supply prices vary a lot across Europe, but in the Netherlands for example, prices increased from 40 to 70 euros per megawatt hour between mid 2005 and mid 2006. Oil and gas prices also increased substantially during 2006. In an energy intensive business like ours, this is an extremely large cost burden to sustain,” says Leplat.

In a recent report on its group activities, DSM stated that its 2006 third quarter operating profit from continuing operations fell 3% to €209m ($264.6m) from €215m the previous year, as higher energy and raw material prices offset higher sales volumes and selling prices. DSM chairman Peter Elverding said, “Increased energy prices and raw material costs had the anticipated effects on the results of this quarter, preventing us from reaching the high level achieved in the same period last year.”

Extremely volatile energy prices are burdening manufacturers in their struggle to rein in costs and improve profitability. While it's a situation companies would prefer not to face, at least it has highlighted the importance of developing strategies to deal with these challenges such as multi-sourcing and increasing contract efficiencies.

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