Chemical Monitor

Selling prices for many products in the chemical sector have been gaining momentum, mainly due to higher production costs especially in the case of organic chemicals.

In July, the overall index for chemical prices advanced by an average of 0.5%, compared with an increase of 0.2% in the previous. On a longer-term basis, selling prices were still marginally lower, falling by the 0.5% compared with a year ago, though these trends have shown variations according to the product groups concerned.

Pharmaceutical prices fell by 0.1% in July, having been static the previous month. However, prices for intermediate chemicals jumped by 1.6%, following an increase of 0.2% in June. A major rise was seen for organic chemicals, with prices up sharply by 3.4% in recent weeks.

But the latest price increases have been affected markedly by the rise in certain costs. The cost index advanced by 0.2% in July having been stable in June, although the longer-term trend was still downward. On an annual basis, costs were 1.6% lower than July 2001.

There has been a significant increase in costs for organic chemicals; these rose by 0.4% in July, while pharmaceuticals went up by 0.2% having already risen by 0.1% in June. A major factor has been the rise in crude oil prices, which went up by 2.2% in July - though this rise does not take into account the latest hike. In August, the possibility of a war against Iraq caused a sharp increase in crude oil prices.

The costs of some imported materials have been falling, but imported raw chemicals went up by an average of 1.3% in July. However, some other input costs have been lower, especially fuels (excluding crude oil), which declined by 0.8% in July.

Clearly chemical manufacturers will have to watch their costs very carefully, mainly as a result of the higher world market price for crude oil - a trend that could continue, especially if hostilities in the Middle East were to escalate. It will be essential for chemical suppliers to improve their productivity significantly to maintain their margins at a satisfactory level.