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.