Chemical Monitor - January 2006
Costs of raw materials and fuels have been speeding up, putting added pressure on profitability for many firms. In particular, costs of intermediate products have remained at a high level in recent months.
Costs of raw materials and fuels have been speeding up, putting added pressure on profitability for many firms. In particular, costs of intermediate products have remained at a high level in recent months.
During January, the cost index increased by an average of 0.8% in the chemical sector as a whole, following a rise of 0.6% at the end of last year. Moreover, the underlying trend for chemical costs has been gaining momentum, with an increase of 12% on an annual basis.
Cost increases for intermediate products moved up by an average of 0.8% in January following a similar increase in the previous month. Compared with a year ago, the index for intermediates has jumped by 14% in value. The increase for pharmaceutical products has been more moderate, rising by 0.3% in January and by 4.4% compared with the corresponding period in the previous year.
The price of crude oil has moved up significantly, showing a gain of 9.2% in January and a rise of 53% compared with a year ago. Other fuel costs have been slightly lower, falling by 0.7% in January.
Costs of imported products have been variable: for imported metals they moved up by 1.7% at the beginning of 2006, while for imported chemicals, the rise averaged about 0.5% in this period.
The trend in chemical prices has also speeded up, showing an increase of 1.4% in January as against a rise of 0.5% in the previous month. However, the underlying trend for prices has been quite limited, with a rise of 4.6% in prices compared with 12 months ago. As a result, profit margins in chemical sector have been adversely affected on a longer-term basis, with cost increases exceeding price rises by more than 7% compared with 2005.
There has been a substantial increase in prices for intermediate products, which went up by 2.8% in January as against a gain of 1.5% in December 2005. Furthermore, on an annual basis, prices of intermediate products have moved up by an average of 8.4% in value. However, prices for pharmaceuticals have barely changed with an increase of only 0.2% compared with a year ago. On the whole, chemical manufacturers will have to watch their margins carefully, as they could be adversely affected by a significant squeeze on their profitability in the coming months.