Metal prices drop
Staff -- Plant Engineering, 2/1/2002
Basic metal prices fell sharply in 2001. For example, average wholesale prices for U.S.-made steel fell 6.5%, U.S. copper tags declined 16% and domestic aluminum prices dropped 12.6%. But have plant engineers who buy metal products seen any of the deflation benefit? Not enough of it, for while materials costs have been falling, downstream metal producers have managed to pass along only a small portion of the savings to buyers.
Deflation trends in primary metals instead have been used to boost fabricated metal margins. Looking at the Plant Engineering price/cost table we see that makers of metal doors and trim have been the most aggressive deflation opportunists. Thanks to a 3.2% decline in the industry's materials costs, the cost to manufacture metal doors dropped 1.7% between November 2000 and November 2001. But average prices that plant engineers and everyone else paid for metal doors rose 1.3%. As a result, SIC 3442 enjoys a margin grade of A.
The sheet metal work industry (SIC 3444) has also kept a large portion of their metals cost savings from buyers. Here direct manufacturing costs declined 2.3% between November 2000 and November 2001. Buyers of sheet metal work can construct good arguments to capture more cost savings by focusing on the cost of raw materials. We saw per-unit cost declines of 17.4% for stainless steel sheet and strip, 8.1% for carbon steel sheet and strip, and 3.5% for aluminum sheet and plate.
Forecasts from Thinking Cap Solutions suggest such strong deflationary trends will help keep the lid of prices in 2002. Average sheet metal work prices are predicted to rise just 0.5% in 2002.
| Industry | SIC | Average Product Prices¹ Change, % During 12-Mo Ending...Aug 01 | Average Product Prices¹ Change, % During 12-Mo Ending...Nov 01 | Direct Mfg. Costs² and Margins Grade Costs are... | Direct Mfg. Costs² and Margins Grade Grade | Growth in U.S. End Markets³ Change, %, During 12-Mo Ending...Aug 01 | Growth in U.S. End Markets³ Change, %, During 12-Mo Ending...Nov 01 |
| General Sawmills and Planing Mills | 2421 | -6.67 | -4.86 | stable | F | -1.59 | -2.02 |
| Millwork | 2431 | 1.31 | 1.86 | falling | A+ | 2.63 | 1.72 |
| Hardwood Veneer and Plywood | 2435 | 0.84 | 0.20 | falling | A | -0.38 | -1.27 |
| Softwood Veneer and Plywood | 2436 | -6.45 | -3.61 | stable | D | -0.38 | -1.27 |
| Metal Partitions and Fixtures | 2542 | 0.98 | 0.79 | stable | B | 1.63 | 0.55 |
| Paints and Allied Products | 2851 | 2.37 | 2.40 | falling | A | -1.98 | -2.60 |
| Flat Glass | 3211 | 0.99 | 0.69 | stable | F | 5.56 | -2.14 |
| Other Structural Clay Products | 3259 | 6.96 | 7.27 | rising | A | 3.21 | 2.10 |
| Gypsum Products | 3275 | -25.86 | -24.43 | stable | D | -0.38 | -0.54 |
| Mineral Wool | 3296 | -3.15 | -1.03 | stable | C | 1.05 | 0.42 |
| Steel Pipe and Tubes | 3317 | -0.10 | -2.10 | stable | B | -2.22 | -4.93 |
| Plumbing Fittings and Brass Goods | 3432 | 0.15 | -0.83 | stable | B | 2.41 | 1.50 |
| Metal Doors, Sash and Trim | 3442 | 1.41 | 1.27 | stable | A | 2.10 | 1.33 |
| Sheet Metal Work | 3444 | 0.63 | 0.02 | stable | B | 6.32 | -0.37 |
| Refrigeration and Heating Equipment | 3585 | -0.22 | -0.05 | stable | D | -3.98 | -3.41 |
| Current-Carrying Wiring Devices | 3643 | -0.78 | -0.62 | stable | F | 6.62 | 0.71 |
| Noncurrent-Carrying Wiring Devices | 3644 | 1.54 | 2.10 | stable | A | 6.62 | 0.71 |
| Commercial Lighting Fixtures | 3646 | 0.17 | -0.14 | stable | D | 1.33 | 0.17 |
| Environmental Controls | 3822 | 0.26 | 0.13 | stable | D | 0.89 | 0.61 |
| ¹ Average product price changes are calculated from the producer price index for each 4-digit SIC (standard industrial classification) industry from the U.S. Bureau of Labor Statistics. ² Analyses of each industry's direct manufacturing cost changes are from Thinking Cap Solutions, Inc.'s proprietary Industry Cost Escalation (ICE) model. The "grade" indicates that recent price/cost changes have produced record high (A+) margins to average margins (C) to record low (F-) margins for the average producer in an industry. Grades of A to A+ mean plant engineers may be able to strike a better bargain with suppliers and better control plant costs. ³ Growth in U.S. end markets data are from the ICE model and are estimates of output for the domestic end markets which purchase a given industry's products. All data prepared and presented by Thinking Cap Solutions, Inc., Port Angeles, WA (telephone: 360-452-6159; e-mail: ebaatz@ice-alert.com). |
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