Building up the price of materials

Spring has sprung, and producers of building materials are off and running. From January to February, 10 out of 19 industries in our plant construction and maintenance supplies group pushed through price hikes. Two that increased average product prices most dramatically included the softwood plywood industry, with a 4.3% monthly price hike, and gypsum products, with a 1.9% increase.

In many cases, higher tags have a solid cost-based foundation. Average and even seriously below average margins are a common ailment. One coping strategy is to increase prices. In the most extreme case, in order to restore manufacturing-related margins to average levels, the typical manufacturer of gypsumboard would need to push though a price increase of 11.5%. Softwood plywood producers, meanwhile, would require an average price hike of just 1.7% to achieve the same objective.

Some inflation hot spots, however, may be worth fighting. One possible battlefield is the noncurrent-carrying wiring devices industry. In February producers in this industry hit buyers with a 1.3% price increase. But margins in SIC 3644 have been rising steadily since September '00 and now stand well above normal. Price target analysis from Thinking Cap Solutions suggests SIC 3644 can afford to cut tags by 3.2%, which would bring margins back to average levels. Other industries that enjoy above-average margins along with the price cuts that would restore margins to average levels include: millwork, which can withstand a 3.7% average price cut; hardwood plywood, cut 3.2%; paints, cut 5.8%; other structural clay products, cut 5.2%; and metal doors, sash and trim, cut 1.6%.