Building up the price of materials

Spring has sprung, and producers of building materials are off and running. From January to February, 10 out of 19 industries in our plant construction and maintenance supplies group pushed through price hikes. Two that increased average product prices most dramatically included the softwood plywood industry, with a 4.3% monthly price hike, and gypsum products, with a 1.9% increase.

In many cases, higher tags have a solid cost-based foundation. Average and even seriously below average margins are a common ailment. One coping strategy is to increase prices. In the most extreme case, in order to restore manufacturing-related margins to average levels, the typical manufacturer of gypsumboard would need to push though a price increase of 11.5%. Softwood plywood producers, meanwhile, would require an average price hike of just 1.7% to achieve the same objective.

Some inflation hot spots, however, may be worth fighting. One possible battlefield is the noncurrent-carrying wiring devices industry. In February producers in this industry hit buyers with a 1.3% price increase. But margins in SIC 3644 have been rising steadily since September ’00 and now stand well above normal. Price target analysis from Thinking Cap Solutions suggests SIC 3644 can afford to cut tags by 3.2%, which would bring margins back to average levels. Other industries that enjoy above-average margins along with the price cuts that would restore margins to average levels include: millwork, which can withstand a 3.7% average price cut; hardwood plywood, cut 3.2%; paints, cut 5.8%; other structural clay products, cut 5.2%; and metal doors, sash and trim, cut 1.6%.

Price/cost/demand roundup

Average Product Prices
Direct MFG. Costs
Growth in U.S. End Markets

Change, %, During 12-Mo Ending…
and Margins Grade
Change, %, during 12-Mo Ending…

Industry
SIC
Nov 01
Feb 02
Costs are…
Grade
Nov 01
Feb 02

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. ebaatz@ice-alert.com ).

General Sawmills and Planing Mills
2421
-4.75
-1.71
stable
C
-2.04
-1.14

Millwork
2431
2.04
2.29
stable
A
1.69
1.60

Hardwood Veneer and Plywood
2435
0.46
-0.02
rising
A
-1.25
-0.93

Softwood Veneer and Plywood
2436
-3.64
0.47
stable
C
-1.25
-0.93

Metal Partitions and Fixtures
2542
0.81
0.50
stable
A
0.54
0.46

Paints and Allied Products
2851
2.37
2.27
rising
A
-2.64
-1.25

Flat Glass
3211
0.66
-0.44
falling
F
-2.03
-6.18

Other Structural Clay Products
3259
7.23
5.59
stable
A
2.08
1.77

Gypsum Products
3275
-24.21
-17.48
stable
D
-0.61
-0.08

Mineral Wool
3296
-0.95
-0.45
stable
C
0.37
0.63

Steel Pipe and Tubes
3317
-2.02
-3.05
stable
C
-4.91
-5.65

Plumbing Fittings and Brass Goods
3432
-0.83
-1.48
stable
C
1.48
1.39

Metal Doors, Sash and Trim
3442
1.23
1.09
stable
B
1.30
1.33

Sheet Metal Work
3444
-0.02
-0.47
stable
A
-0.29
-3.52

Refrigeration and Heating Equipment
3585
-0.05
0.20
stable
C
-3.54
-0.72

Current-Carrying Wiring Devices
3643
-0.90
-1.21
stable
F
0.76
-2.70

Noncurrent-Carrying Wiring Devices
3644
2.10
1.76
stable
A
0.76
-2.70

Commercial Lighting Fixtures
3646
-0.10
-0.28
stable
D
0.14
-0.11

Environmental Controls
3822
0.12
0.11
stable
C
0.55
0.60

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