Grades plunge to D and below

Overall, costs for manufacturers of factory materials and supplies continue to rise at a fairly brisk pace. In the three months ending January 2003, production costs rose 0.7%. That's a far cry from the 0.8% drop in costs that manufacturers enjoyed January 2002.

The problem, of course, is that prices for the products sold did not keep pace with costs. So with margins under pressure and a possible war-induced recession looming, what prospects do plant engineers face for keeping their budgets from falling apart?

The table of margin grades calls the shots. Today, a total of 10 industries are sporting margin grades of D or below. Three months ago, only one — metal fasteners (SIC 3452) — graced the poor-man's list of F- industries. Now three others also show record-breaking low margins, including copper rolling (SIC 3351), nonferrous wire drawing (SIC 3357), and surface active agents (SIC 2843).

Despite these pressure spots, plant engineers may find some useful negotiation opportunities in industries that show an A or B grade in the margin column. For example, the industrial valves (SIC 3491) industry shows a B grade in its margin column and will demonstrate some price discounting abilities in the months ahead. This industry can afford to discount prices by only 0.6% at the moment. But with forecasts showing tags rising 0.5% in 2003:Q1 and another 0.8% in 2003:Q2, discounting abilities could soon reach nearly 2%.

Leaping to the chemicals sector, we see that prices for lubricating oils and greases (SIC 2992) will stay on an upward path in the first half of 2003. Although price hikes of 0.2% in 2003:Q1 and 0.3% in 2003:Q2 won't cover fresh cost increases, producers in SIC 2992 will maintain a collective discounting ability of at least 3%.