Chemical monitor - July 2004

Chemical costs have been gaining momentum and have shown a significant increase recently. In particular, costs of organic chemicals have speeded up as a result of the significant rise in crude oil prices.

During May 2004, the index for raw materials and fuel increased by an average of 1%, compared with a rise of 0.3% earlier in the year. However, the annual increase for costs has been quite subdued, rising by only 0.4% compared with the corresponding month in the previous year.

Pharmaceutical costs were up by 1% in May, but compared with a year ago they were 0.7% lower. Intermediate product costs went up by an average of 1.3% in May, led by an increase of 1.8% for organics. However, the underlying trend has been moderate, with an increase of only 0.3% compared with 2003.

The cost index has been mainly influenced by the recent increase in oil prices, which rose by 13.6% in May, although imported products showed a more modest increase. Imported chemicals went up by 1 6%, while imported metals costs gained 0.5% in this period.

The index of selling prices rose by 0.4% in May and by 1% compared with year ago. There was an above-average increase in prices for intermediate products, which rose by 0.8%, but these were down by 0.2% on a year ago. Pharmaceutical prices increased by only 0.2% in May but have risen by 1.8% on an annual basis.

Evidently, profit margins in the chemicals sector have been under pressure recently for many chemical products. This trend is expected to continue, especially as production costs could forge ahead further in the short term.

Moreover, interest rates have started to rise gradually and borrowing costs for many chemical companies could increase significantly before the end of this year.