Chemical sector margins improve

Margins in the UK chemical sector have improved recently, but this upturn may be only temporary, as input costs could start to speed up in the coming months.

During May, price rises exceeded those for costs by 0.2%. Moreover, the longer term movement in margins has also shown some increase, averaging a gap of 0.7% compared with a year ago.

Cost movements in the chemical sector have slowed down, rising by only 0.1% in May, as against an increase of 0.5% the previous month. In addition, the longer-term trend recorded a fall of 2.2% over 2001.

Fuel costs fell by 1.2% during May but imported heavy chemicals rose by 1.3%, while those for metals were also higher.

Pharmaceuticals costs were static in May following a gain of 0.4% in the previous four weeks and they dropped by 0.9% compared with a year ago. Costs for intermediate chemicals were also steady, having risen by 1% in April. The annual trend for intermediates has recorded a fall of 2.8%.

Selling prices in the chemical industry continued to rise: up by 0.3% in May, having risen by 0.2% the previous month. However, they were down by 1.5% on an annual basis.

Pharmaceutical prices showed little change, although they were 0.5% higher than a year ago. Intermediate product prices increased by 0.4% compared with 0.1% in April. But they were lower in the longer term, having fallen by 1.1% compared with a year earlier.

Despite the recent improvement in margins, chemical manufacturers must be wary about future cost and price movements. Input costs could gain momentum in the medium term, particularly in view of the recent weakness of sterling against the Euro.