Industries face low margins
Staff -- Plant Engineering, 5/1/2003
Plant engineers who have to buy construction and maintenance supplies are facing a veritable minefield of negotiation problems. That's because a whopping seven industries are suffering under-record or near-record-low manufacturing margins, as evidenced by the F and F- grades in our margin table.
Topping the list of troubled industries, the current-carrying wiring devices (SIC 3644) industry saw its average costs rise 3.3% between February 2002 and February 2003. Meanwhile, the prices charged for wiring products rose just 0.7%. This cost/price escalation mismatch lopped off $1.25 from industry margins for every $100 worth of product sold. Now, manufacturers in SIC 3644 are under pressure to hike prices anywhere between 2.2% and 4.1% in order to get margins back to year-ago or 5-yr average levels.
Producers of metal partitions and fixtures (SIC 2542) also sport an F- grade in our cost table. Margins here are at an all-time record low. Looking at the February 2003 data compared to a year ago, we see the cause for the margin meltdown: a huge 5.6% cost hike coupled with a meager 0.1% price increase. To get margins back in line with average levels, makers of metal shelving must hike tags by anywhere from 3.5% to 4.8%.
Now the question remains what leverage will suppliers in these industries have to stick it to the buyers? In the case of metal fixtures, the answer is not much. Here the end markets that buy metal fixtures continue to shrink, down 2.8% in the 12-month period ending February 2003. On the other hand, end markets for wiring devices have begun to grow again, up 1.8% in the 12-months ending February. This demand strength may embolden wire makers to try to push through price hikes.
| Average Product Prices¹ Change, %, During 12-Mo Ending... | Average Product Prices¹ Change, %, During 12-Mo Ending... | Direct Mfg. Costs² and Margins Grade | Direct Mfg. Costs² and Margins Grade | Growth in U.S. End Markets ³ Change, %, During 12-Mo Ending... | Growth in U.S. End Markets ³ Change, %, During 12-Mo Ending... | ||
| Industry | SIC | Nov 02 | Feb 03 | Costs are... | Grade | Nov 02 | Feb 03 |
| General Sawmills and Planing Mills | 2421 | -1.46 | -1.34 | rising | D | -0.60 | -0.70 |
| Millwork | 2431 | 0.62 | 0.10 | rising | B | -2.13 | -1.81 |
| Hardwood Veneer and Plywood | 2435 | 0.02 | -0.09 | rising | C | -1.17 | -0.80 |
| Softwood Veneer and Plywood | 2436 | -3.17 | -3.67 | rising | D | -1.17 | -0.80 |
| Metal Partitions and Fixtures | 2542 | -0.78 | -0.72 | stable | F- | -1.85 | -2.83 |
| Paints and Allied Products | 2851 | 1.50 | 1.43 | rising | C | -0.16 | 0.82 |
| Flat Glass | 3211 | -2.83 | -1.87 | rising | F | 4.52 | 7.80 |
| Other Structural Clay Products | 3259 | 4.12 | 5.23 | rising | B | -2.10 | -1.80 |
| Gypsum Products | 3275 | 7.64 | 7.95 | rising | D | -2.50 | -2.87 |
| Mineral Wool | 3296 | 0.67 | 0.49 | rising | F | -1.33 | 0.06 |
| Steel Pipe and Tubes | 3317 | 2.47 | 5.81 | stable | A+ | -1.36 | 0.71 |
| Plumbing Fittings and Brass Goods | 3432 | -0.25 | 0.35 | stable | D | -2.58 | -2.20 |
| Metal Doors, Sash and Trim | 3442 | 0.59 | 0.62 | stable | C | -2.44 | -2.60 |
| Sheet Metal Work | 3444 | 0.74 | 1.54 | stable | F | 1.83 | 4.10 |
| Refrigeration and Heating Equipment | 3585 | 0.41 | 0.33 | stable | F | -0.25 | 0.55 |
| Current-Carrying Wiring Devices | 3643 | -0.65 | -0.10 | rising | F- | -0.19 | 1.81 |
| Noncurrent-Carrying Wiring Devices | 3644 | 1.34 | 1.54 | rising | F | -0.19 | 1.81 |
| Commercial Lighting Fixtures | 3646 | -0.34 | -0.26 | stable | D | -1.51 | -1.54 |
| Environmental Controls | 3822 | 0.06 | 0.27 | stable | F | -1.88 | -1.74 |
| 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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