Chemical Monitor

Over the past six months, production costs in the chemical industry have been rising, and for certain products this trend has been accelerating - until now. In April, total costs were lower and it will be interesting to see whether the upward movement will be reversed over the medium term.

During April, the cost of fuel and materials fell by 0.2% in the chemical industry, compared with a rise of 0.5% in March. However, total costs were still higher than a year ago, averaging an increase of 2.2% as against 2.7% for the 12 months ending in March.

A major factor has been the fall in the price of crude oil, following the successful outcome of the war in Iraq. Oil prices declined by 18% during April and have now stabilised at the lower level. Moreover, costs of certain imported products have also been declining, especially imported metals, which dropped by 1.4% in April.

Costs for certain chemicals were higher, especially pharmaceuticals which went up by 0.3% in April, following a similar rise in March. The cost of intermediate products dropped by 0.3% in April, having risen by 0.9% in the previous four weeks.

Selling prices have slowed down and showed a rise of only 0.1% in April as against 0.3% the previous month. Chemical prices were up by 3.7% in value compared with a year ago.

Pharmaceutical prices have risen steadily, increasing by 0.2% in April and by 0.6% on an annual basis. The increase in selling prices for inter-mediate products averaged 0.5% in April - about the same as for March - and are 6.1% higher than a year ago.

Chemical costs are likely to be variable in the short term and may show a downward trend in the coming months. Trading conditions in the British economy are slowing down significantly and some commentators expect that deflation may become a dominant factor. As a result, some prices for raw materials and fuels could show a softer trend over the medium term.