Chemical monitor: December '05 - January '06

Total costs in the chemical industry have fluctuated over the past few months, but recently the upward trend has accelerated, putting added pressure on narrowing profit margins.

During September, costs for raw materials and fuel have risen sharply, showing an increase of 0.5%, compared with a fall of 0.1% in the previous month. The underlying increase in costs remained substantial compared with September 2004, averaging a gain of 8%. Intermediate product costs averaged a rise of 0.6% in September 2005 and 8.6% on an annual basis. However, costs for pharmaceuticals declined by 0.2% on a monthly basis and moved up by only 0.9% compared with a year ago.

Fuel costs advanced by 0.4% in September and rose by more than 30% compared with the previous year. However, although oil costs declined by nearly 2% in September, they went up by almost 45% on an annual basis. The trend for imported products has been variable, with an increase of 0.2% for chemicals coming in from abroad; in contrast imported metals were slightly easier, declining by 0.2% in September.

Many chemical firms were reluctant to push up their selling prices in view of increasing competitive pressures; thus the chemical index for prices rose marginally by 0.1% in September. On an annual basis it increased by 5.8% for the industry as a whole.

Prices for intermediate products advanced by 0.2% in September, following a rise of 0.4% in the previous month. On an annual basis, the average increase for chemical intermediates was 7.5% in value. Prices for pharmaceutical products remained stable in September, but marked a fall by 1.7% in comparison with the previous year.

Profit margins in the chemical sector have been squeezed recently. It is possible that costs will remain at a high level for some time and chemical manufacturers will have to raise their productivity significantly if they want to increase their earnings in the coming months.