Raw materials, energy costs threaten chemicals industry revival in the UK


Updated 6/1/2018


LONDON—Strong sales in Europe drove an increase in United Kingdom chemical and pharmaceutical exports, but rising raw materials, energy and employment costs could negatively impact the industry in the near future.

According to the Chemicals Industries Association, U.K.-based chemical and pharmaceutical manufacturers saw a 5 percent increase in exports in the first two months of this year. Much of that was driven by strong sales to other European Union countries, with gains also seen in other world regions, according to the finding of the CIA’s latest quarterly survey of the sector.

The performance was about in-line with the U.K. manufacturing sector as whole, which grew exports by 7 percent—helped by a weak sterling—CIA economist Nick Sturgeon said during a briefing for chemical industry journalists.

Despite the export growth, U.K. chemical production was up by just 0.4 percent year-on-year in the first quarter. This compared to 2.2 percent for pharmaceuticals and 2.5 percent for U.K. manufacturing as a whole, Sturgeon said.

But while poor weather had taken “some shine off the confidence of U.K. manufacturers,” Sturgeon added that there had been “some rebound in April [and] export orders are still growing robustly.”

On the other hand, Sturgeon reported weakening domestic demand and said that “higher wages and raw materials and energy costs will weigh on margins.”

Nevertheless, Sturgeon expects to see steady growth in capital investment over the next 12 months, along with a strengthening of “employment intentions.”

The CIA survey also asked U.K. chemical manufacturers to identify the most significant opportunities and challenges for their businesses over the next 12 months. Compared to a year ago, the highest levels of optimism were around new capacity and products. Respondents also were optimistic about expanding markets, mainly in the U.K. and EU, but to a lesser extent in North America and Asia, excluding China.

On the flip side, there is increasing concern about the impact of Brexit uncertainty, higher raw materials and energy costs, and the lack of production capacity.

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