Gypsumboard makers could cut prices sharply
Producers of construction supplies have pushed through some solid price hikes. These price hikes in 2005 contrast sharply with price cuts and modest price increases that populated the buying environment last year. For example, in the 12 months ending August 2004, tags for gypsum products and Fiberglass increased by a meager 1.
Producers of construction supplies have pushed through some solid price hikes. These price hikes in 2005 contrast sharply with price cuts and modest price increases that populated the buying environment last year. For example, in the 12 months ending August 2004, tags for gypsum products and Fiberglass increased by a meager 1.3% and 0.2%, respectively. A year later, gypsum prices have soared 15.8% while average prices for Fiberglass have grown 7.5%.
Should plant engineers just accept these price hikes going forward? The answer depends on each supplying industry's margin situation. Here, a mixed bag prevails. Taking into account not just prices charged but also the cost of manufacturing, we see that margins improved in seven industries, worsened in eight, and was unchanged in the final six among the 21 industries that make up PLANT ENGINEERING'S construction supplies indices.
The gypsum and fiberglass industries illustrate two distinct negotiation environments. In gypsum products, the margin grade swung from a B last year to A+ now.
Any industry that moves to an A+ margin grade signals that buyers have an opportunity to push for price discounts. For wallboard and other gypsum products, average prices escalated nearly three times faster than the total cost to manufacture. As a result, for every $100 worth gypsum products sold the average wallboard maker saw manufacturing margins grow by $3.91 compared to a year earlier. Adding in overhead costs, we see that total margins grew $6 (per $100 of product sold) above last year's invoice surplus.
This means gypsum suppliers are under less pressure to raise prices. Indeed, in order to earn the same return on manufacturing as that earned on average over the past five years, gypsum manufacturers have room to discount tags by a whopping 17%.
Construction & Maintenance supplies
Average Product Prices (1) % Change During 12 Months Ending
Direct Manufacturing Costs (2) and Margins Grade
Growth in U.S. End Markets (3) % Change During 12 Months Ending
3 months ago
3 months ago
(1) Average product price changes are calculated from the producer price index for each 6-digit NAICS (North American Industry Classification System) industry from the U.S. Bureau of Labor Statistics.
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Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.
There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.
But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.
Read more: 2015 Salary Survey