Chemical monitor: May 2005

Profit margins have shown an improvement recently. Some chemical manufacturers have been able to push up their prices steadily, especially with regard to intermediate products, as demand for chemical products has been quite strong.

During February, price increases outpaced cost rises by 0.5% - a useful improvement considering the pressure on margins over the past 12 months. In fact, compared with a year ago, profitability was lower, with cost increases exceeding price gains by 3.4% for the sector as a whole.

On average, chemical prices advanced by 0.8% in February, compared with a fall of 0.1% in the previous month. The underlying trend for price movements has been more favourable, rising by 6.8% on an annual basis, led by an increase for organic chemicals. Compared with a year ago, intermediate prices have advanced by 10.3%, whereas pharmaceutical prices have been fluctuating and dropped by 0.1% in February and by 1.2% on an annual basis.

Costs have been steadier, moving up by 0.3% in February as against an increase of 1% in January. The cost rise averaged 10.2% for the 12 months ended February 2005. Costs for intermediate products advanced by 0.3% and by an average of 12.3% compared with a year ago. However, pharmaceutical costs remained steady in February and increased by 4.2% over the previous year.

The cost index for the chemical sector has been influenced by the continued high price for oil; this rose by 2.7% in February, although other fuels recorded a drop of 1.3% in this period. Imported chemicals increased by 0.7%, as did imported metals, showing a gain of 0.9%.

The recent rise in margins is a welcome development for many chemical manufacturers, as their profitability has been hard-pressed lately. However, there is a question mark over whether this increase in profitability will persist, especially as crude oil prices are likely to continue to move ahead quite markedly in the coming months.