Chemical monitor: February 2005

Chemical costs have continued to rise, despite the latest fall in crude oil prices, and have put added pressure on the activities of some of the leading manufacturing companies.

During November, the index for production costs went up by an average of 1.1%, compared with a gain of 0.7% in the previous month. Moreover, the underlying upward trend for chemical costs has averaged 6.1% compared with the same period a year ago - a rate considerably higher than earlier in the year.

This trend was somewhat surprising, as oil costs have shown a temporary fall recently: they dropped by an average of 12.8% in November as a result of increased output.

However, with the onset of winter, it is expected that oil prices will resume their upward trend shortly, due to the likely rise in overall demand for all types of oil.

The costs of certain imported products have shown a rise recently. The price of imported metals went up by 0.3% in November and imported heavy chemicals by 1.7%.

The trend for fuels other than crude oil went up by 3.7% in this period.

In terms of product groups, the costs of intermediate products advanced by 1% in November as against 0.7% in the previous month and by 7% on an annual basis. Costs for pharmaceuticals increased by 0.4% in November and were 1% higher than a year ago.

The rise in chemical prices continued to lag behind the increase in chemical costs in this period. This was not surprising in view of the competitive market for most chemical products in the UK. Prices went up by 0.7% in November compared with 0.4% in October, and advanced by 6% compared with the corresponding period in the previous year.

Prices for certain chemicals were steady in November, including those for pharmaceuticals, but intermediate products advanced by 1.7% in November, with the increase being led by organics. As a result, prices of intermediate products jumped by 10% when measured against the trend for 2003, with a gain of nearly 20% for many organic products.