Don't slip on lubricating oils

Plant engineers who buy operating materials and supplies need to watch two products carefully. Three months ago, the lubricating oils and greases (SIC 2992) industry and the wood pallets and skids (SIC 2448) industry were registering declines - and in the case of oils, rapid declines in their average production costs.

04/15/2002


Plant engineers who buy operating materials and supplies need to watch two products carefully. Three months ago, the lubricating oils and greases (SIC 2992) industry and the wood pallets and skids (SIC 2448) industry were registering declines — and in the case of oils, rapid declines in their average production costs. And with prices still rising rapidly, the negotiation position favored buyers to a large degree.

Now, production cost trends have completely flipped around. In the lubricating oils industry, average costs of production rose 1.1% between December '01 and January '02. With prices falling 0.4%, the industry took an 89-cent margin loss for every $100 of product sold.

In the wood pallets industry, average costs of production increased 1.5% over the same December-to-January period while product prices for pallets dropped 0.4%. The result: for every $100 worth of pallets sold, U.S. manufacturers saw the cost/price trends nibble $1.29 from margins.

These kinds of trends mean plant engineers who are buying these products in bulk may be finding their once strong negotiation position slipping a bit. The lubricating oils industry, however, did a great job of capturing the margin enhancements from sharp drops in oil-related costs over the past few years. That means buyers can argue that cost cuts from previous years have yet to be passed along to buyers. To restore margins in the lubricating oils industry back to its 5-year average level would require a 13.6% price drop.

Buyers of wood pallets can argue that a 3.2% price cut is needed before pallet manufacturers see their margins return to 5-year average levels. Beware, however: returning margins to January '01 levels actually requires a 0.7% price hike.

Price/cost/demand roundup

Industry

SIC

Average Product Prices

Average Product Prices

Direct Mfg. Costs

Direct Mfg. Costs

Growth in U.S. End Markets

Growth in U.S. End Markets

Wood Pallets and Skids

2448

0.51

0.42

rising

A

-4.48

-5.56

Polishes and Sanitation Goods

2842

0.95

0.61

stable

B

1.96

1.95

Surface Active Agents

2843

2.67

1.90

stable

B

-2.91

-2.81

Adhesives and Sealants

2891

3.40

3.24

falling

A

-2.16

-4.13

Lubricating Oils and Greases

2992

7.24

5.75

rising

A

-0.96

-3.14

Rubber and Plastics Hose & Belting

3052

3.20

3.67

stable

A

-3.51

-4.19

Abrasive Products

3291

0.07

0.09

stable

D

-3.18

-6.21

Steel Wire and Related Products

3315

-1.47

-1.92

stable

F

1.82

1.58

Copper Rolling and Drawing

3351

-2.61

-5.57

rising

D

0.23

-6.89

Nonferrous Wire Drawing & Insulating

3357

-0.87

-3.03

stable

B

2.53

-4.28

Heating Equipment, except Electric

3433

1.25

1.23

stable

A+

0.49

0.64

Fabricated Plate Work, Boiler Shops

3443

1.00

0.92

stable

A

-1.90

-4.20

Bolts, Nuts, Rivets and Washers

3452

0.10

0.14

stable

C

2.15

1.85

Industrial Valves

3491

1.74

1.60

stable

B

0.00

-0.98

Fluid Power Valves and Hose Fittings

3492

1.33

1.42

stable

A

0.00

-0.98

Other Valves and Pipe Fittings

3494

3.93

4.39

stable

A

0.00

-0.98

Miscellaneous Fabricated Wire Prod.

3496

0.28

0.27

stable

B

-1.79

-3.35

Fabricated Pipe and Fittings

3498

1.32

0.66

stable

A

0.00

-0.98

Ball and Roller Bearings

3562

0.94

0.43

stable

B

-3.10

-4.49


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.





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