British chemical industry growth decelerates rising energy prices is the main reason
Although the UK chemical industry saw a significant increase in production in 2004, surpassing initial growth expectations, the first half of the year presented a more challenging outlook. Several regulatory bodies have since revised their forecasts downward. The British Chemical Industry Association (CIA) highlighted that the sharp rise in energy prices has seriously affected the competitiveness of the sector.
According to the CIA, the UK chemical industry experienced a slowdown during the second half of 2004 and into the first half of this year. The drop in chemical output during the first half was largely attributed to a downturn in the pharmaceutical sector, driven by increased imports of generic drugs. Additionally, the coatings and specialty chemicals segments also showed weak performance.
The Oxford Economic Forecasting Centre (OEF) has reduced its forecast for UK chemical output twice this year. Initially, it predicted a 2.3% growth, but now expects a slight decline of 1.1%, including the pharmaceutical sector. Due to the ongoing weakness in the pharmaceutical industry, the overall chemical production is expected to fall slightly for the full year.
The CIA emphasized that the surge in energy costs has had a more severe impact on the chemical industry than previously anticipated. Member companies reported that fixed-term natural gas contract prices have risen by at least 70% compared to last autumn. In contrast, other EU countries still maintain control over their energy markets, resulting in UK industrial users paying over 30% more for natural gas than their European counterparts.
Moreover, the continuous depletion of North Sea natural gas reserves is raising concerns about potential shortages in the UK. Some chemical firms warn that natural gas prices could continue to climb this winter, potentially forcing certain chemical plants to halt operations. This growing uncertainty adds to the challenges facing the industry as it navigates an increasingly difficult economic landscape.
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