Chemical Monitor - October 2004

Profit margins in the chemical industry have improved recently. However, it is likely that the industry will face narrowing margins in the coming months, in view of the sharp rise in oil and energy prices.

In July margins widened significantly. On a longer-term basis, price rises exceeded cost movements by an average of 0.9% when compared with the situation a year ago. But the cost trends do not take into account the sharp increase in oil prices and other fuel costs in recent weeks and these factors could have a serious impact on profitability in the chemical sector over the medium term.

During July the index for chemical costs for fuel and materials showed little change. However, cost movements were greater than a year ago, recording a rise of 1.5%.

In July, crude oil prices went up by 4%. Imported heavy chemicals advanced by 0.3%, while imported metals also increased by 2%. In the case of fuels excluding crude oil, cost trends were mixed but ended July with a fall of 0.5%.

Pharmaceutical costs were steady in July and moved up by only 0.1% on an annual basis. Costs for intermediate products were slightly higher in July and advanced by 1.8% compared with the previous year.

Selling prices jumped by 0.9% in July, having been marginally higher in June; they were also up by 2.4% on a year ago. The recent increase in prices was not surprising and reflects the narrowing margins on certain products since the beginning of the year.

There was a significant increase in prices for intermediate products, which advanced by 0.7% in July led by a big rise for organic products. Moreover, compared with a year ago, prices for intermediate goods were 1.8% higher.

Pharmaceutical prices rose marginally by 0.1% in July, having been steady in June. The increase on an annual basis for pharmaceuticals was 1.8%, though there have been significant variations in price rises for certain products, with above-average increases for antibiotics and hormone preparations.