Chemical monitor: January 2005

Profitability in the chemical sector has been under pressure for some time and the situation has worsened for certain products in recent months.

Due to strong competition, most chemical companies have been unable to push up prices sufficiently to recoup their higher costs and this worrying trend may persist, despite the recent easing in crude oil prices on world markets.

Costs of production in the chemical industry have continued to rise appreciably, increasing by 0.7% in October. Admittedly, the rise in costs was not as sharp as in September but the longer term underlying trend continued strongly upward, showing a rise of 5% compared with the corresponding period in 2003.

Costs of intermediate products rose by 0.7% in October and by an average of 6.1% on an annual basis. However, pharmaceutical costs dropped by 0.6% in October against a rise of 0.7% the previous month, while the underlying trend has been quite subdued, increasing by only 0.6% compared with a year ago.

In October, oil prices jumped by nearly 12% in value, although they have dropped gradually over the past few weeks. Fuel costs were significantly higher, with a gain of 4.6%, while imported metals went up by 0.8% in this period.

However, the trend for imported chemicals has been mixed, falling by 0.2% overall, partly as a result of the fall of the dollar against sterling. It is believed that more cost increases are likely to be in the pipeline, especially as oil prices will continue to fluctuate and may resume their upward trend in the coming months.

Selling prices have also gone up, albeit at a slower rate than overall production costs in recent months. During October, the price index advanced by 0.3% compared with 0.5% the previous month. The underlying trend has been variable and showed a rise of between 4% and 5% for some products compared with a year ago.

The average increase in prices for intermediate products was 0.4% in October against a rise of 0.8% in September. On an annual basis the gain was 7.7% in this period. Pharmaceutical prices remained steady in October, having risen marginally in the previous month; and they were up by 1.1% on October 2003.