Chemical monitor

Margins for certain chemical products have come under pressure, and manufacturers have been unable to push up prices to recoup the higher costs they have been incurring. However, profit margins should be steadier over the next few months, as increases in fuel and material costs are expected to slow down in the medium term.

In March, the cost index continued to move ahead quite rapidly, rising by 0.5% in value, similar to the previous month. Overall costs are rising faster than a year ago, increasing by 2.7% on an annual basis. Fuel costs eased: the price of crude oil fell by 3.9% while other fuels dropped by 2.3%. But imported metal prices were 0.3% higher, while imported chemicals advanced by 1.4%.

Pharmaceutical costs moved up by 0.3% in March, having risen by 0.2% the previous month. Compared with a year ago, they were 1.5% higher. Costs for intermediates jumped by 0.9%, with most products showing a substantial gain. On average they were 4.5% higher than March 2002.

Total costs in the UK chemical industry are expected to slow down steadily in the coming months. Pressure on crude oil prices is easing, following the successful outcome of the Iraqi war, while the slowdown of the UK economy will also have a moderating influence on cost inflation. Thus profit margins should recover to some extent, even though the market for chemicals will remain competitive for most products.

Chemical prices have also moved up, albeit at a slower rate: up by 0.3% in March following a rise of 0.2% in February. They are an average of 3.4% higher than a year ago. Pharmaceutical prices have been fairly stable - up by only 0.1% in March and 0.6% higher than a year ago.

However, intermediate prices have risen quite substantially, by 0.5% in March and by 6% compared with 2002. Some manufacturers are reluctant to push up their prices more quickly, as they may lose market share in the competitive market prevailing at the moment.