Chemical monitor

Having been fairly static over the past six months, production costs in the chemical industry have shown signs of increasing recently. Fuel costs have risen partly due to seasonal factors, and oil prices are expected to increase significantly over the next few months.

The cost index for fuel and raw materials for the chemical industry increased by 0.2% in November, having been stable in October. Over the longer term, however, it has shown little change, down just 0.1% on a year ago.

During November, fuel costs jumped by 4.1%, excluding crude oil price movements. In fact, the cost of oil fell, though this trend was sharply reversed in December and early January, due to the possibility of war in the Middle East. Other costs were mixed, but were lower for imported metals and chemicals during November.

Costs for pharmaceuticals went up by 0.1% in November, having been static in the previous month. With the exception of organic chemicals and industrial gases, costs for intermediate products have shown no change.

Selling prices in the chemical sector have fluctuated, but were slightly easier in November. They dropped by 0.1% in that month, although they were up by 1.3% compared with the corresponding period 12 months earlier.

Prices of pharmaceuticals were unchanged, but intermediate products recorded an above-average fall in some cases, notably organic chemicals.

It appears that some UK firms in the chemical sector were unwilling to push up their prices, particularly in view of the uncertain economic climate prevailing in the UK at present. This has meant that margins for certain products have become tighter than usual, especially as forthcoming cost increases are still in pipeline. Pressure on company earnings may persist for some time, especially as a considerable cost increase for certain commodities, especially crude oil, is likely in the near future.