Chemical Monitor - January 2004

The recent marked increase in oil prices has had a significant impact on many chemical products and costs have risen significantly, especially for organics and pharmaceuticals.

During October the cost index for the chemical industry increased by 0.5%, reversing the fall of 0.3% in the previous month. Moreover, the underlying trend for production costs has shown signs of accelerating, with a gain of 2.7% on an annual basis.

Pharmaceutical costs increased by 0.6% in October and by 3.4% compared with a year ago. For intermediate products the average increase was 0.6% in October; organics led the rise with a gain of 0.8% in this period.

A major factor has been the steep rise in crude oil prices, which went up by 8.4% in October, while other fuels also increased by 1.4%. Imported raw chemicals showed a gain of 0.7%, but imported metals were easier, declining by 0.2% in October.

The increase in chemical prices was limited to 0.2% in October compared with a gain of 0.3% in September. The underlying trend for price increases was fairly stable, averaging a rise of 2.2% compared with the corresponding period in the previous year.

Prices of pharmaceuticals showed only a limited rise of 0.1% in October as against 0.4% in September. However, the downward trend in intermediate products continued, with a fall of 1.2% compared with 0.4% in September.

Margins in the chemical industry have been narrowing and this trend could continue in the short-term. Oil prices are likely to fluctuate in the coming months and chemical manufacturers will have to watch their profitability carefully as a result of changing production costs in the medium-term.