Temporary fall for chemical costs

The index for chemical costs has continued to decline, particularly in the case of intermediate products. However, it is likely that this trend will be reversed as a result of the significant rises in crude oil prices that are now taking place.

During June 2006 chemical costs declined by 0.6%, having fallen by 1% in May. However, the underlying trend has been upwards, with production costs increasing by an average of 6.8% on an annual basis.

In June costs for intermediate products showed a decline of 0.8% mainly due to a fall for organic chemicals though; but on an annual basis, intermediate costs have risen by 8.5%. Costs for pharmaceuticals remained stable in June following a drop of 0.5% in May and have risen by only 3.6% compared with a year ago.

There was a significant fall of 4.2% in fuel costs in June, excluding oil products. Costs for imported metals declined by 0.1% recently. However, costs for imported chemicals advanced by 0.4%.

The index for chemical prices was slightly easier, falling by 0.1% in June having been static in the previous month. Moreover, the underlying trend for chemical prices has been fairly stable, rising by 4.5% compared with a year ago. As a result, profit margins in the chemical industry have been narrowing and cost increases have exceeded price rises by around 2% on an annual basis.

Prices for intermediate products barely moved during June, although they were up by 8.6% on a year ago. For pharmaceuticals, the overall index for prices remained steady but hormone preparations showed an above average increase in prices recently.

It is difficult to predict the trend for cost movements but it is expected that production costs could go higher in the coming months. A major factor is the current trend in oil prices, which are likely to remain high for some time, partly as a result of the escalating hostilities in the Middle East.