Chemical Monitor - December 2004

Total costs in the chemical sector have continued to rise rapidly and have accelerated in some cases. This is putting significant pressure on profit margins, as many chemical companies have been unable to push up their prices sufficiently to recoup these higher charges.

The cost index for raw materials and fuels in the chemical industry increased by 1.9% during September, following a gain of 1% the previous month. The underlying trend has also accelerated substantially, up 6% compared with the previous year.

A major factor has been the hike in fuel prices, which went up by 5.7% during September, while crude oil costs rose by a further 2.2% in September. Some imported products have also risen in cost, mainly due to the strength of sterling against the dollar during this period. Prices of imported metals have increased by 2.1%, while imported chemicals showed an increase of 2.4%.

Costs for pharmaceuticals advanced by 0.7% in September, following a rise of only 0.2% in the previous four weeks. For intermediate chemicals, the rise was 2%, which was double the rate for the previous month, bringing costs to 7.6% above the level this time last year.

Selling prices also rose in September but at a more moderate rate. They went up by 0.5% in September compared with an increase of 0.4% in August. The average increase compared with a year ago was 4.2%, which was much lower than the rise in the cost index .

Prices for intermediate products advanced by 0.8% in September and by an average of 5.8% compared with a year ago. Pharmaceutical prices, however, have been quite stable with a rise of only 0.1% in September, having been static in the previous month.

Margins in the chemical sector have been under pressure for most products. Some chemical firms will have to fight hard to maintain a reasonable level of profitability, especially as production costs could continue to escalate over the medium-term, with crude oil prices leading the upward trend.