Chemical monitor: March 2005

Profit margins in the chemical industry have fluctuated recently and no decisive trend has emerged. However, there have been improvements lately, partly as a result of falling raw material costs.

During December 2004, price increases outpaced costs by about 0.8%, reversing the previous month's trend. But the longer-term trend was still worrying, with cost increases exceeding price rises by 1.4% compared with the previous year.

Cost changes in December were more favourable for the chemical industry. In particular, crude oil prices fell by nearly 15%, although other fuel costs rose by 2.3%. In addition certain imported products were lower: the price of metals dropped by 2.8%, while imported chemicals fell by 0.7%.

Looking at the chemical sector as a whole, the index for materials and fuels declined by 0.4% in December, having risen by 1.1% in November. However, the underlying trend was still higher, averaging 5.5% on an annual basis.

Costs for intermediate products dropped by 0.5%, following a rise of 1% in November, while costs for pharmaceuticals fell by 0.1% in December as against a rise of 0.4% the previous month.

In contrast, chemical prices have been rising steadily, advancing by 0.4% in December compared with 0.7% in November. But there has been some slowdown in the longer term trend for prices: the increase in their value averaged 4.1% over the previous year.

The selling prices of intermediate products advanced by 1.5% in December compared with 1.7% in November, while the underlying trend moved up by 9.7%. However, prices for pharmaceuticals were fairly steady and showed a gain of only 0.1% in December, leading to a rise of 1.5% on a yearly basis.

Some analysts are becoming more optimistic about margins in the chemical industry, even though most markets are very competitive. Much will depend on the trend for crude oil prices, which could ease further in the short term, leading to better margins for some products, especially for organic chemicals.