Production costs for chemicals show fall

Chemical costs have been fluctuating over the past few months but recorded a drop recently. This was mainly due to falling prices for fuels and crude oil and the drop in production costs may be only temporary.

During May 2006, the index for chemical costs declined by 1% in value, following a drop of 0.9% in the previous month. Moreover, the underlying trend for costs has been slowing down, with an average increase of 7.4% compared to a year ago.

A major factor was the 3% fall in overall fuel costs; crude oil prices declined by 3.2% in May. Iimported heavy chemicals fell by 1.2% in this period but an increase of 2.6% was been reported for imported metals.

There was a significant fall for costs of intermediate products, which declined by 0.8% in May after a drop of 0.2% in April. Costs for pharmaceuticals were also 0.8% lower in May, having been static the previous month. The trend for costs for pharmaceutical products has been fairly stable and showed an increase of only 3.5% compared with a year ago.

It is likely that some production costs will continue to fall in the short term but the medium-term outlook is uncertain. In particular, crude oil prices are likely to remain high and may even increase further in the coming months.

Selling prices showed little change in value during May, even though they went up by 0.5% in April. The longer-term trend for chemical prices has been uneven, showing a rise of 4.6% on a yearly basis.

Prices for intermediate products eased by 0.5% in May mainly due to the sharp fall in organic prices. However, prices for pharmaceuticals were slightly higher, increasing by 0.1% in May .

Despite the fall in production costs, margins in the chemical industry have remained unstable. On a longer-term basis, chemical costs exceeded the increase in prices by about 3% and chemical companies will have to watch their profitability closely for many of their products over the medium term.