Chemical monitor - August

Production costs in the chemical sector have continued to fall, with the decline accelerating in some cases. In particular, costs for organic chemicals have dropped markedly, mainly as a result of the continued fall in oil prices.

During May, the index for fuel and raw materials fell by 0.3%, compared with a drop of 0.1% in the previous month. Moreover, the underlying trend for chemical costs has slowed significantly, showing a rise of only 1.7% over the corresponding period in the previous year.

Pharmaceutical costs remained stable in May following a rise of 0.3% in April, and were up by 1.9% compared with 2002. Costs for intermediates products fell by an average of 0.5% against a drop of 0.2% in April. This fall was driven by organic chemicals, whose costs declined by 0.7% in May.

Crude oil prices have eased, down 2.2% in May. Other fuel costs were 0.3% lower but a slight increase in costs of imported chemicals and metals were reported in this period.

A small increase in chemical prices was reported in May - at 0.1% the rise was similar to that of the previous month. Compared with a year ago, selling prices have risen by 3.3%.

Prices for pharmaceuticals were steady in May, having risen by 0.2% in April, while the underlying trend was marginally up by 0.6%. Some intermediate product prices were higher, especially for organics, which rose by 1% in May.

Evidently, profit margins in the chemical industry have been improving as a result of falling costs. However, competition in the chemical industry has been intensifying in some sectors and many chemical manufacturers will have to watch their margins carefully in the future.