Chemical monitor: June 2005

Increasing production costs have been reported in the chemical industry, following a period of relative stability in the earlier part of the year.

This increase was mainly due to rising prices for certain imported bulk chemicals, as well as the sharp gain in crude oil prices on the international market.

In March, the index for raw materials and fuels advanced by 1.2%, having risen by only 0.3% in the previous four weeks. The underlying trend for chemical costs has also risen markedly, averaging a gain of 11.6% compared with the corresponding period in the previous year.

Costs for intermediate products advanced by 1.3% in March as against only 0.3% in February; moreover, they went up by nearly 14% on an annual basis. However, costs for pharmaceuticals remained fairly stable and showed a marginal fall of 0.1% during March.

The main reason for these higher costs has been the jump in crude oil prices, which advanced by 15% in March and by more than 50% compared with the previous year. In addition, prices of imported heavy chemicals increased by 1.6% in March and by 14.5% compared with the same period in 2004. The price trend for imported metals has been variable and showed an increase of 1% in March.

In contrast, chemical prices have been lagging behind the rise in chemical costs, with the index for chemical prices falling marginally, by 0.1% in March, although it was up by 7% compared with 12 months ago. Prices for intermediate products moved up by only 0.5% in March, but they have advanced by nearly 10% on an annual basis. For pharmaceuticals, there has been a downward trend, with prices falling by 1.3% in March and by 2.7% on a 12 month basis.

Evidently, the latest rise in production costs is a worrying factor for some chemical manufacturers, but much will depend on whether these rises, especially for oil products, are maintained in the future.

Some analysts believe that crude oil could rise further in the short term, which could put added pressure on the profitability of many leading chemical firms over the coming months.