Chemical monitor
Profit margins in the chemical industry have come under pressure recently. Costs have been rising significantly for some time while selling prices have gone up only slowly in recent months.
Profit margins in the chemical industry have come under pressure recently. Costs have been rising significantly for some time while selling prices have gone up only slowly in recent months.
During November 2003, cost increases exceeded price movements by 0.4%, and margins have also narrowed considerably in the longer term. Compared with a year ago, the gap between cost increases and price rises has widened by 1.9% and, for certain chemical products, the differential has been even more significant. Evidently, some chemical manufacturers have been unable to push up their prices sufficiently to recoup their higher costs in recent months, mainly due to increasing competition in the industry.
In November, selling prices rose by only 0.1% compared with 0.2% the previous month. The underlying trend has been quite subdued, with prices only 2.1% higher than a year ago.
Pharmaceutical prices showed a downturn of 0.2% in November compared with an increase of 0.1% the previous month. Intermediate chemicals prices rose by 0.2% in November following a sharp fall of 1.2% in October. On an annual basis, intermediate prices have advanced by an average of 1.7% compared with 2002.
Chemical costs have continued to rise relatively rapidly, showing an increase of 0.5% in November, which was similar to the previous month. Costs are 4.0% higher than a year ago, adding to pressure on margins for most chemical manufacturers.
The main reason for the higher costs has been the steep rise in fuel prices in November - up by 4.6% in this period, excluding crude oil which fell by 2.4%. Some imported products have also shown a marked rise, including imported metals which advanced by 1.5% in November. But imported chemicals remained static in this period.
Costs for pharmaceuticals remained relatively stable: up only 0.1% in November, despite a fairly rapid increase on an annual basis. There was a significant increase in costs for some intermediate products, especially organics which jumped by 0.7% in November due to the high prices for crude oil. On an annual basis, intermediate costs have advanced by an average of 4.5%.
Chemical manufacturers mustwatch their margins carefully, especially as fuel and raw material costs are likely to increase further. Moreover, the cost of borrowing has started to go up and this trend may accelerate over the medium term, while the scope for higher prices will be limited for the time being.