Chemical Monitor

Costs in the chemical industry have been rising rapidly for some time but recently the trend has accelerated, partly due to higher oil prices, as well as increasing costs for imported raw materials. In February, the cost index for materials and fuel rose by 0.5%, having already gone up by 0.3% the previous month. The underlying trend has also been upwards, averaging an increase of 1.6% on an annual basis.

A major factor has been the continued increase for crude oil in world markets, mainly due to the hostilities in the Middle East. Oil prices went up by 2.3% in February and by 45% on an annual basis. In addition, imported raw material prices were higher, with metals rising by 1.3% and imported raw chemicals by 1.5% during February.

The rise in pharmaceutical costs was limited to 0.2% in February and 1.1% over the year. Intermediate chemical costs, however, jumped by 0.7% that month and by 2.9% compared with 2002.

Chemical prices also tended higher, but the increases were less marked: up 0.2% in February, following a 0.9% rise in the previous month. On a longer term basis, prices have been gaining momentum and advanced by an average of 3.3% compared with a year ago.

Prices for intermediate products led the gains with an increase of 0.5% in February, compared with 1% in January. However, pharmaceutical prices remained stable in February, following a rise of 1% the previous month.

The rise in costs and prices may slow down in the short-term, especially if the hostilities in Iraq come to an end fairly soon, leading to steadier prices for crude oil in the coming months. Moreover, prices for chemical products will also stabilise some extent, especially as the UK market shows signs of slackening. Many chemical companies will be reluctant to raise their selling prices in the unsettled market conditions which are likely to prevail in the coming months.