Manufacturers to raise prices amid oil price hike

Manufacturers to raise prices amid oil price hike

Tony Hotland, The Jakarta Post, Jakarta

Worldwide oil prices that have zipped over historical highs are
beginning to take a toll on domestic manufacturers, inevitably
forcing them to jack up prices.

Chairman of the Indonesian Food and Beverages Association
Thomas Darmawan said that many producers were mulling over
whether to pass the adverse effect onto consumers.

"Production costs have been going up over the past few months,
especially for plastics that are used a lot in this industry. But
some have yet to raise prices to prevent lower sales during the
busy season in the next two months. They'll probably wait until
early next year," Thomas told The Jakarta Post.

Except for producers of packaged mineral water, he quickly
added.

"Many of them have imposed new prices on several products,
such as glass and bottle packaging, by about 8 percent. Plastic
prices have gone up by at least 50 percent over the course of the
year," said Thomas.

International plastic prices, he said, currently stood at
US$1,400 per ton, far from the figure of $900 in January, thus
keeping prices the same out of question as the material accounted
for up to 85 percent of production costs.

Thomas said producers were compensating for the escalating
costs by cutting corners in other areas such as advertising,
promotion and research, although it was still not sufficient to
avoid eroding profit.

"I'm sure profits are falling, but I cannot say how much," he
said.

President director of the country's largest mineral water
producer PT Aqua Golden Mississippi, Willy Sidharta, said Aqua
would likely make adjustments soon.

"Profits are affected, but not significantly for now. Besides,
the total sales volume of mineral water for this year is to grow
by 15 percent compared to last year. We still can tolerate the
higher costs," he said.

Global oil prices have expanded by at least 10 percent during
the year, last week peaking at $55 per barrel, over fears of
limited supply. Analysts predict they could even surpass the $60
level by early next year.

Electronic manufacturer Electrolux is not spared. Company
marketing director Indrayana said Electrolux was set to adjust
prices up by 2 percent on average next month.

"100 percent of our products are imported and our (overseas)
suppliers are saying costs are going up by 4 percent to 5
percent. However, we'll probably won't raise prices on products
that have a large market size because they're more price
sensitive, such as 14-inch televisions or one-door
refrigerators," he told the Post.

Like packaged mineral water, most of raw materials for
electronic products are also plastic-based.

"Since our products are imported, we're also dealing with
transportation costs. That's why we're trying to increase
efficiency by taking products from Asia rather than Europe, for
example," Indra said.

Leading pulp and paper producer Sinar Mas Group has also
adjusted prices due to the higher cost of transportation.

"Eighty percent of our products are exported to the United
States and Japan. Transportation costs have been getting more
costly over the past four months and we had to seek
alternatives," said company director Yan Partawijaya.

He said the company was seeking more opportunities to sell its
products to the local or Southeast Asian markets to cut expenses.

Nevertheless, Yan was upbeat the company's sales would still
grow by 5 percent this year as demand seemed to be unaffected by
the soaring oil prices.

But analysts have that the oil hike could put a brake on
demand as households and companies would allocate more funds for
fuel.