Inflation trouble spots exist for hardwood logs, stumpage costs

The 19 industries in our Construction Materials and Supplies index make a diverse mix of products, so blanket statements about inflation trends are a tough sell. One thing we can say: industries that have managed to raise their prices in excess of the underlying rate manufacturing costs are few and far between. These few are good negotiation targets now.

The commercial lighting fixtures (SIC 3646) industry represents a great opportunity for plant engineers who are managing their costs. Per-unit manufacturing costs in SIC 3646 gained just 1% over the last three months. Not only did light producers pass along the entire cost hike to buyers, they also used aggressive pricing tactics to expand average industry margins by $1.30 for each $100 of output sold. To restore average manufacturing margins to levels held last November 2002, average prices for lighting fixtures would have to fall 2.1%.

The sawmills (SIC 2421) industry also has nurtured a healthy relationship between overall costs and output prices. Per-unit spending on manufacturing-related activities plus overhead increased just 2.3% from November, 02 to November, 03. During the same time span, industry output prices rose 8%. Mill operators easily shifted their added cost structure burdens on to the backs of customers and now have room to cut average prices by as much as 5.6%.

Per-unit spending on raw materials in SIC 2421 is up only 1.7% from a year ago. That's primarily the result of falling prices for softwood bolts and logs, which is the industry's No. 1 input. Delving deeper, we see that prices for many other key materials have actually recorded sharp gains over the last 12 months. Inflation trouble spots include hardwood logs, stumpage costs, and logging services.