Chemical monitor: October 2005

Production costs for the chemical sector have shown significant rises in recent months, mainly due to the sharp increase for crude oil on world markets. An above-average increase in costs for organic chemicals was recorded - a trend that is expected to accelerate over the medium term.

During July, the cost index for fuels and raw materials for the chemical industry advanced by 0.5% as against a gain of 0.4% in the previous month. As a result, total costs moved up by 10.5% compared with the corresponding period in the previous year.

Intermediate costs went up by 0.8% in July, bringing the annual rise to 11.7%. However, costs for pharmaceuticals stabilised, and were up by only 2.4% compared with a year ago.

These increases have been driven by energy costs: crude oil costs jumped by 9% in July and by 57% on an annual basis. Certain imported products also moved up, especially metals which advanced by 1.4% in July. However, the trend for imported chemicals showed little change.

Prices were higher for certain chemicals, rising by 0.8% in July and by 6.3% on an annual basis. The most notable feature has been the gain for dyes and pigments, which jumped by 3.7% in July, but other products have been fairly stable and recorded only limited gains.

World oil prices have gone up further in recent weeks and this trend will persist for some time. This will put added pressure on profit margins for many chemical products, especially for organic goods. Some manufacturers will therefore find that their margins on certain products will continue to be eroded over the medium term.