Cost Trends

Between March and June, prices for many key commodities have been on the rebound. The result: inflation has started to rear its ugly head, creating cost control concerns for many industries that make the equipment and tools that plant engineers use. For example, with prices for steel heating up, makers of materials handling equipment are beginning to experience an upturn in manufacturing costs.

09/15/2002


Between March and June, prices for many key commodities have been on the rebound. The result: inflation has started to rear its ugly head, creating cost control concerns for many industries that make the equipment and tools that plant engineers use.

For example, with prices for steel heating up, makers of materials handling equipment are beginning to experience an upturn in manufacturing costs. Although it's unlikely higher costs translated into higher product prices over the summer months, buyers should be on guard this autumn. Since the announcement of tariffs on imported steel, materials handling industries have experienced erosion in margins that can be traced directly to increased spending on steel. In three of these industries, margin losses are approaching $1 for each $100 of product sold.

Makers of conveyors and conveying equipment (SIC 3535) face the most serious inflation challenge. Since March, per-unit spending on manufacturing has increased 0.77% while industry product prices have tumbled 0.87%. This escalation disparity has lowered margins by 96 cents for each $100 of product sold. About 4/5 of this margin loss can be attributed to an increase in raw materials costs. A roundup of 3-month cost increases for key inputs shows: carbon sheet and strip up 9.47%; carbon steel bars up 2.11%; and other carbon steel shapes up 3.67%. While all of this is clearly bad news for producers, higher costs should play a limited role in negotiations. Thinking Cap Solutions' cost model calculates that margins in SIC 3535 remain above normal. The same can be said for margins in the elevator (SIC 3534) and hoist, crane and monorail (SIC 3536) industries. Makers of industrial lift trucks (SIC 3537), on the other hand, face below-average margins.

Price/cost/demand roundup

Average Product Prices Direct Mfg. Costs Growth in U.S. End Markets
Industry SIC Mar 02 June 02 Costs are... Grade Mar 02 June 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.

Other Hand and Edge Tools34233.583.32risingB-2.99-4.32
Hand Saws and Saw Blades3425-0.70-0.50risingD-1.96-1.98
Other Hardware34291.771.56risingB-2.91-3.20
Other Power Transmission Equipment35681.881.88risingA-7.14-5.93
Conveyors and Conveying Equipment35351.501.24stableB-5.47-6.86
Hoists, Cranes and Monorails35361.320.92stableA-2.71-4.21
Industrial Trucks and Tractors35370.890.20stableD-5.29-6.52
Metal-Cutting Machine Tools3541-3.64-5.71stableF--8.77-7.73
Machine Tool Accessories35451.851.55stableD-6.42-4.79
Power Driven Hand Tools35461.981.26stableD-1.02-1.55
Welding Apparatus35481.881.78risingB-3.94-2.60
Pumps and Pumping Equipment35612.723.06stableA-3.73-3.73
Air and Gas Compressors35632.332.08stableA-3.73-3.73
Speed Changers, Drives and Gears35661.791.57stableB-7.14-5.93
Transformers3612-1.56-1.60stableF-8.34-6.97
Motors and Generators36210.310.07risingF-4.31-3.04
Process Control Instruments38231.481.37stableB-2.99-1.81
Fluid Meters and Counting Devices38240.480.11stableC-2.99-1.81
Instruments to Measure Electricity38250.700.90stableD-8.48-6.68





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