Oil slump good for API makers, until a major supplier turns off the tap says industry group

By Gareth Macdonald contact

- Last updated on GMT

“Energy pricing has not only been a key issue for the large multinationals globally but also for the smaller manufacturers typical of the majority of EFCG members.”
“Energy pricing has not only been a key issue for the large multinationals globally but also for the smaller manufacturers typical of the majority of EFCG members.”
Falling oil prices are good news for firms that make pharmaceutical ingredients according to a European chemical industry group.

This week the price of Brent crude oil – the international benchmark blend against which other oils are priced – fell below $50 a barrel for the first time since April 2009 as continued high production by OPEC countries and North American suppliers sustained the glut in the market.

Since then the price of Brent crude has crept back to $51 a barrel​. 

According to a Reuters report​ trading firms Vitol, Trafigura and Shell have hired tankers to store excess oil at sea until prices increase, which is a strategy that was also employed in 2009.

Short term, storing oil at sea may help prices recover according to analysts at JBC Energy​, however, they also said any effect is likely to be temporary while current production levels are maintained.

The economic impact of the low oil price – which has lost more than half its value since June last year – will vary significantly according to analysis​ published by the International Monetary Fund in December.

Predictably, the IMF thinks that exporters - like Russia, countries in the Middle East, Gabon, Angola, the Republic of Congo, Ecuador and Venezuela – will see GDP decline as a result of lower oil prices.

For importing countries, the effects are more varied according to the Fund, which said there are three main channels through which the impact will be felt.

The first is the effect of the increase in real income on consumption. The second is the decrease in the cost of production of final goods, and in turn on profit and investment. The third is the effect on the rate of inflation, both headline and core​.”

API suppliers

The point about lower production costs was echoed by the European Fine Chemicals Group (EFCG), which is the arm of the European Chemical Industry Council (CEFIC) that represents active pharmaceutical ingredient (API) suppliers.

An EFCG spokesman told Outsourcing-pharma.com that: “Energy pricing has not only been a key issue for the large multinationals globally but also for the smaller manufacturers typical of the majority of EFCG members.”

He added that, for the time being, lower oil prices are “good news for all oil-based energy consumers until a big oil supplier or group turns off the tap​!”

Whether the European API firms the EFCG represents – BASF, Merck KGaA and Lanxess unit Saltigo – pass savings on to the drug industry remains to be seen, however doing so may help such companies compete with lower cost suppliers according to Joshua Owide, GlobalData’s Director of Healthcare Industry Dynamics.

Owide told us: “Increasingly, companies are contracting firms in emerging markets, such as India, to manufacture their products, and so the benefits of lower oil prices might be somewhat diluted in these instances​.”

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