Chemical Monitor: July 2005

Since the beginning of the year, production costs for the chemical sector have seen a strong upward trend, but this has eased recently, especially for intermediate products.

However, it is difficult to predict whether production costs will fall further, given the sharp fluctuations of crude oil prices in world markets.

According to the index for raw materials and fuels, total production costs in the chemical industry declined by 0.5% in April, having gone up by 1.2% in the previous month. However, the underlying trend was still significantly higher, rising by 11.7% on an annual basis.

In April, UK chemical manufacturers benefited from lower fuel costs as well as from easier crude oil prices. In addition, imported heavy chemicals prices declined by 1.7% in April, although imported metals were slightly more expensive in this period.

Costs for intermediate products declined by 0.7% in April as against a rise of 1.3% in March, with an above-average fall recorded for organic chemicals. Similarly, lower costs were recorded for pharmaceutical products, which fell by 0.5% in April, following a drop of 0.1% in March.

Selling prices of leading chemicals were slightly lower with a drop of 0.1% in April - the same as in March. Compared with a year ago, chemical prices were up by nearly 7% but this increase was still well below that recorded for chemical costs.

Prices for intermediate rose marginally by 0.1% in April following an increase of 0.5% in March. On an annual basis, prices for intermediate products advanced by 10.7% compared with the corresponding period in 2004. Pharmaceuticals prices were 0.5% lower in April, following a sharp fall in the previous four-week period.

Clearly profit margins remained under pressure in the chemical industry despite the recent fall in costs. Over the next few months, it is likely that chemical costs will resume their upward trend and that margins will continue to be quite tight for many products.