Chemical monitor

Production costs in the UK chemical sector continued to slide, having been on a downward trend for some time. In December, the overall index for raw materials and fuels dropped by 0.1%, having already declined by 0.2 % in the previous month. Compared with the same month in 2000, the fall averaged 3%, though there were variations for certain product groups.

In particular, UK chemical companies benefited from lower crude oil prices and lower costs for imported raw materials. Oil prices fell by 4.7% in December and by 28% on an annual basis, while imported raw chemicals were down by 0.5% in the closing month of 2001 and by 5% on the corresponding period a year ago.

The pharmaceutical sector also benefited from the fall in chemical costs, which fell by 0.1% in December and by 0.8% on a year ago. Similarly, the cost of intermediate products fell by 1% in December, having been static in the previous month, and representing a 5.5% fall over the year.

Partly as a result of lower input costs, some chemical companies reduced their prices by 0.2% in December, bringing the average decline in prices to 0.7% on an annual basis. Intermediate prices dropped by 0.2% in December, following a small rise of 0.1% the previous month. In contrast, prices for some pharmaceuticals went up by 0.2% at the end of last year, having been static in the previous month.

Competition in the chemical market has been fairly intense recently, but margins have improved somewhat as a result of falling costs. The gap between prices and costs widened by 2.3% on a longer term basis, a trend which may continue for some time.