UK chemicals production returns to growth despite materials woes

London – The UK chemical industry has achieved some of its highest levels of production in recent months, following a decline in the first quarter of 2021.

UK chemical production grew 4.4% month-on-month in April before falling back slightly to 1.0%, in May, said the Chemical Industry Association (CIA) in a 20 Aug statement. 

Despite the minor contraction – and excluding April 2021 and December 2020 – chemical production in May was at its highest level since August 2008, said CIA citing data from Office for National Statistics (ONS).

Quarter-on-quarter chemical production is set to register a growth between 2 and 4% in the three months to end of June.

Chemical exports in the month of May contracted 0.3% compared to April and 2.8% compared to March, but were still 17.0% higher than the pre-pandemic monthly average in the final quarter of 2019.

All metrics, such as exports, production levels, employee numbers and business investment, were reported to have grown strongly in the second quarter of 2021 and are expected to continue this growth at a slightly slower pace into the third quarter, the CIA said.

Despite the strong performance, the CIA warned that the industry faced multiple challenges including the transition to net zero, UK REACH regulations and logistical issues following Brexit.

The most significant challenges, however, are the current raw material shortages and price hikes, lack of skilled labour and freight delays, the CIA noted.

The association said its members were reporting “a sharp rise in raw material prices which is outpacing the growth in finished goods prices,” putting pressure on margins.

“Supply chain bottlenecks and raw material shortages are leading to an increase in member companies time to deliver,” said the CIA.

Furthermore, 40% of CIA members who took part in its quarterly survey reported labour shortage.

The CIA, however, said it remained "cautiously optimistic" for the coming months as data showed “record demand in multiple areas of the economy,” while the labour market is seemingly embarking on a ‘U-shaped' recovery.

In June, it said, 356,000 people joined payroll, taking the total number of people on payroll to 0.7% lower than pre-pandemic levels. 

Consumers are also beginning to exhibit signs that their appetite to spend the savings they built up in 2020 is high, although Covid still poses a threat.