Steel pipe and tubes earn high grade

Every month this column presents a snapshot of the industries that provide key supplies to plant engineers. This issue, we examine a single one in depth: steel pipe and tubes (SIC 3317).

This industry gets an A in the "margins grade" column as the typical supplier of pipes and tubes has seen the prices charged for his products rise faster than the cost of manufacturing. In this case, SIC 3317 pushed through an average price hike of 13.2% from 1996 to the present. Over that same seven-year period, the total cost of manufacturing in SIC 3317 fell 1%. As a result, according to our analysis, now the industry is sitting on a $2.70 margin surplus for every $100 of product sold. Seems like a slam dunk for any buyer who wants to cut costs by hammering for a better price, right? Not exactly.

For one thing, overhead spending on nonproduction salaries and benefits as well as business services and consulting contracts grew 24.8%. Furthermore, the prices we examine in our monthly table represent an average for lots of different product lines. (These price data come from surveys conducted monthly by the U.S. Department of Labor). Product lines often behave quite differently from the average.

In August 2003, for example, prices for alloy steel pipe and tubing soared 30.5% from the same month a year ago. Prices for carbon steel mechanical tubing, meanwhile, declined 2.8%, and structural pipe and tubing made of the same material also fell 5.6%.

Nonetheless, the average data can lead to worthwhile price forecasts. In SIC 3317, we see aggregate prices falling 2.3% in 2004 after a 6.3% hike in 2003. Striking a better deal than average will always mean delving deeper into your supplier's or distributor's cost structure.