Chemical Monitor - December 2003

Production costs in the chemical industry have shown a marked fall in recent weeks and this drop has affected most chemical products, especially organics and pharmaceuticals. A major factor has been the fluctuations in the price of crude oil, which has shown a downward trend recently.

The cost index for fuel and raw materials fell by 0.3% in September, having been fairly static the previous month. However, it was an average of 2.1% higher in value than a year ago.

In September, the crude oil price declined by nearly 10% in the space of four weeks. In addition, imported raw chemicals were 0.5% lower while other products coming in from overseas were also easier. However, prices of certain fuels, excluding oil, rose by 0.5% in this period.

Pharmaceutical costs dropped by 0.5% in September, having risen marginally in the previous month. Costs for intermediate products fell by 0.2%, although they were up by an average of 2.3% compared with a year ago.

Despite the fall in production costs, some chemical manufacturers have pushed up their selling prices, as they were concerned about their profit margins on some products. Thus, the chemical price index increased by 0.3% in September, reversing a fall of 0.4% in August. Compared with a year ago, the price index for the industry has increased by 2.8% on average.

Prices for pharmaceutical products rose by 0.4% in September, having been static in August. In contrast, prices for intermediate products came under pressure, declining by 0.4%, following a fall of 1% in August. Nevertheless, on a longer term basis prices for intermediate products were higher, up 3.2% on a year ago.

Profitability in the industry appears to have been improving recently, but margins are still quite tight for certain products. Moreover, production costs could increase in the near future, especially if interest rates were to rise significantly in the coming months.