Demand conditions favor sellers
Staff -- Plant Engineering, 3/1/2005
Among 19 industries that contribute to our factory equipment and tools price index, 13 saw their average industry prices increase in 2004 at an accelerated pace. However, after averaging all these price hikes together, the PLANT ENGINEERING tools price index increased only 2.8% in 2004, up from a 1% inflation rate in 2003.
But plant engineers cannot rest easy about their tools budget. That's because the PLANT ENGINEERING factory equipment cost index jumped up 8.1% in 2004, after a modest 1.6% manufacturing cost hike the previous year.
As price escalation has not kept pace with costs, manufacturing margin grades remain stuck at record low F-minus or F for 12 industries. Two others improved from an F three months ago to a sub-par D now. So margin pressures certainly are making suppliers anxious to hike prices.
Added to this, U.S. end markets that buy the most tools grew faster from September to December 2004 in all but one industry from our tools marketbasket. That means demand conditions favor sellers and could lead to much higher prices ahead. U.S. end market growth exceeded 12% in 2004 for three: industrial process controls and equipment; mechanical power transmission equipment; and speed changers, drives, and gears.
One of the 19 may offer an opportunity. That's crane, hoist, and monorail manufacturers. In December 2004, this industry spent $85.05 to make $100 of market-valued product. As this represents, for every $100 of product sold, a $4.68 savings from year-ago spending and a $3.77 savings from five-year average spending levels, buyers have a rare chance to argue down any proposed price hikes.
| Construction & maintenance supplies | Average Product Prices (1) % Change | Direct Manufacturing Costs (2) and Margins Grade | Growth in U.S. End Markets (3) % Change During 12 Months Ending | |||
| Industry | Sept. 04 | Dec. 04 | Costs are | Grade | Sept. 04 | Dec. 04 |
| Hand & edge tools (except saws) | 0.34 | 0.70 | rising | F- | 1.38 | 2.27 |
| Saw blades & handsaws | 0.47 | -0.14 | rising | F- | 1.31 | 2.36 |
| Metal hardware | 0.68 | 1.34 | rising | F- | 3.28 | 3.70 |
| Mechanical power transmission equip. | 1.38 | 2.13 | stable | F | 10.63 | 12.72 |
| Conveyors & conveying equipment | 0.91 | 1.71 | rising | F- | 5.13 | 6.21 |
| Cranes, hoists & monorail systems | 1.34 | 1.35 | rising | A | 1.70 | 2.84 |
| Industrial trucks (forklifts) & stackers | 1.01 | 1.29 | rising | F- | 1.24 | 2.17 |
| Metal cutting machine tools | -0.75 | -0.23 | rising | D | 5.76 | 6.61 |
| Cutting & machine tool accessories | 0.37 | 0.49 | stable | F- | 6.73 | 8.18 |
| Power-driven handtools | 0.30 | 0.31 | stable | F- | 2.75 | 3.48 |
| Welding & soldering equipment | 0.83 | 1.35 | rising | D | 4.53 | 5.62 |
| Pumps & pumping equipment | 4.35 | 3.56 | stable | C | 3.56 | 4.50 |
| Air & gas compressors | 0.87 | 0.95 | stable | F- | 4.58 | 5.70 |
| Speed changers, drives & gears | 1.85 | 1.92 | stable | F | 10.63 | 12.72 |
| Power & specialty transformers | 0.09 | 0.18 | stable | F | 3.30 | 4.14 |
| Motors & generators | 0.30 | 0.47 | rising | F | 5.81 | 6.74 |
| Industrial process controls & equip. | 2.07 | 1.97 | stable | A+ | 11.20 | 12.80 |
| Fluid registering & counting devices | 2.30 | 2.44 | stable | C | 3.44 | 2.98 |
| Instruments for electrical testing | 0.18 | 0.23 | stable | A | 6.16 | 7.26 |
| 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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