Model tells vastly different stories

A new cost model from Thinking Cap Solutions shows a distinct dichotomy has emerged in the industries that make plant construction and maintenance supplies. In the table on the right, we see nine industries with a bad grade (F- to D) and five with an A grade for industry margins. That means plant engineers will be facing two very different environments when time for negotiating a new deal arrives.

Buyers of flat glass may find treading carefully to be the best bet when dealing with suppliers. This industry saw its manufacturing costs rise 4.3% over the last six months. Meanwhile, average product prices charged by the flat glass industry declined 2.5%. This cost/price trend has hit manufacturing margins hard. Indeed, to restore margins to average levels requires a solid 5.4% price hike. Suppliers will also be anxious for margin-stabilizing price hikes in the gypsumboard industry, which requires a 9.2% price increase, and the general sawmills industry, which could use a 2.6% upward price correction.

On the flip side, plant managers may find some negotiation leverage when buying hardwood plywood and millwork. The industries that make these products can withstand a 3.4% to 3.8% cut in average prices before margins retreat to average levels. And despite the cost pressures created by steel tariffs, some bargaining opportunities may be found in sheet metal work, steel pipe and tubes, and metal doors. The three industries that make these products could weather average price cuts of 2.3% (for steel pipe) to 1.4% (for sheet metal).

Finally, are we seeing a signal of recovery at last? The end markets that buy refrigeration and heating equipment grew 1.5% in the 12 months ending August 2002. That number sticks out like a night beacon among the long list of declining end markets.