Construction material costs soar

Plant managers may feel they are paying exorbitant prices for gypsum board and softwood plywood. Average prices for gypsum industry products jumped 16% in the 12-mo period ending November 1999. At the same time, softwood plywood prices soared nearly 19%. These price hikes are being driven by strong demand and short supplies. But plant managers who want to try to fight price hikes have some cost analysis ammunition on their side.

For example, the gypsum products (SIC 3275) industry is enjoying record profits now. In November 1999, for every $100 of product sold, gypsum producers are earning an extra $5.88 compared to a year ago. Plant managers who understand and can articulate their knowledge of the growing margin gains that manufacturers are earning may be able to garner some price concessions despite tight supplies.

Here’s how the cost structure of the gypsum industry is shaking out. In the 12-mo period ending November 1999, direct labor costs rose only 2.9%, down from 3.5% a year earlier. Domestic direct materials costs for things like paperboard liners, nonmetallic minerals, and crushed stone rose only 1% in November 1999, compared to a 3.5% materials cost escalation rate a year earlier.

Price/cost/demand roundup

Average Product Prices(super 1) Direct Mfg. Costs(super 2) Growth in U.S. End Markets(super 3)

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

Industry SIC Aug 99 Nov 99 Costs are… Grade Aug 99 Nov 99

Hand and edge tools 3423 1.24 1.17 Stable A+ 4.24 3.85

General sawmills and planing mills 2421 -1.59 2.46 Stable C 3.72 3.82

Millwork 2431 1.29 1.75 Stable C 4.76 5.33

Hardwood veneer and plywood 2435 -0.55 0.09 Falling A 3.88 3.99

Softwood veneer and plywood 2436 19.52 18.66 Stable D 3.88 3.99

Metal partitions and fixtures 2542 1.07 1.08 Stable B 3.70 4.86

Paints and allied products 2851 1.84 1.64 Stable B 6.65 6.99

Flat glass 3211 -5.07 -3.98 Rising F 17.85 17.91

Other structural clay products 3259 1.92 1.51 Stable D 4.80 5.48

Gypsum products 3275 12.65 15.97 Stable A+ 4.29 4.20

Steel pipe and tubes 3317 -4.09 -4.66 Stable A 1.38 2.47

Plumbing fittings and brass goods 3432 0.29 0.84 Stable B 4.62 5.18

Metal doors, sash, and trim 3442 0.47 0.47 Stable B 4.63 5.11

Sheet metal work 3444 0.64 0.27 Stable B 16.79 17.37

Refrigeration and heating equipment 3585 1.51 1.04 Stable B 8.69 9.00

Current-carrying wiring devices 3643 -0.44 -0.09 Stable C 18.76 19.58

Noncurrent-carrying wiring devices 3644 -2.66 -2.73 Stable C 18.76 19.58

Commercial lighting fixtures 3646 0.09 -0.17 Stable D 6.15 6.80

Environmental controls 3822 0.38 0.40 Stable A 5.60 5.89

(super 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.

(super 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.

(super 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: thinkcap@olypen.com).

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