Improved margins for supplies

Margins improved for nine industries that make factory operating materials and supplies and held steady for seven others. But plant engineers still face a challenging environment for buying supplies. Sporting a margin grade of F (see table, opposite), the surface active agents (SIC 2843) industry spends $57.

10/10/2003


Margins improved for nine industries that make factory operating materials and supplies and held steady for seven others. But plant engineers still face a challenging environment for buying supplies.

Sporting a margin grade of F (see table, opposite), the surface active agents (SIC 2843) industry spends $57.42 on direct manufacturing for $100 worth of product, which is $2.37 above average. Producers will close half the profitability gap by the end of the 2003. The supplier's best argument may be that a chemicals-driven cost increase of 8.3% between February '02 and May '03 was not redressed and led to a near-record low level of manufacturing-related margins.

The fabricated plate work industry also has an F grade. An analysis of margins suggests that suppliers have the cost justification for increasing prices by 1.4%. U.S. demand for metal plate work will see a dramatic improvement in 2004 as end-markets growth hits a year-over-year rate of 6.1% in 2004:Q3. Stronger end-markets won't translate into stronger price hikes. Over the last few years, we've seen a disconnect between demand and prices thanks to competition from foreign suppliers. Tags for fabricated plate work will edge ahead 0.8% in 2004.

Ball and roller bearings manufacturers have done a better job stemming margin losses, as evidenced by their average C margin grade. In July 2003, the cost of making a unit of output in SIC 3562 fell 0.6% with the bulk of the decline due to a 1.5% drop in wage rates paid to factory workers. Producers generated additional savings from U.S.-made steel inputs. Cost savings did not translate into lower output prices in July. Indeed, buyers won't see any price relief ahead. A battle between prices and costs will rage in the U.S. bearings industry. From 2003:Q4 to 2004:Q4 industry tags will rise 1.7% while costs will grow 1.3%.

Price/cost/demand roundup

Average Product Prices

Direct Mfg. Costs

Growth in U.S. End Markets

NC means data could not be computed.

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.

All data prepared and presented by Thinking Cap Solutions, Inc., Port Angeles, WA (telephone: 360-452-6159; e-mail: ebaatz@ice-alert.com).

Industry

SIC

April 03

July 03

Costs are...

Grade

April 03

July 03

Wood Pallets and Skids

2448

-0.97

0.48

rising

F-

-0.25

-0.31

Polishes and Sanitation Goods

2842

-0.23

0.15

stable

F

0.34

0.28

Surface Active Agents

2843

-1.05

-0.26

stable

F

0.64

0.23

Adhesives and Sealants

2891

0.02

0.08

falling

F

2.23

1.34

Lubricating Oils and Greases

2992

0.93

1.59

stable

A

0.27

0.18

Rubber and Plastics Hose and Belting

3052

0.83

1.66

stable

D

1.83

1.46

Abrasive Products

3291

0.06

0.40

stable

D

3.15

3.43

Steel Wire and Related Products

3315

1.21

1.45

stable

D

-1.85

-1.03

Copper Rolling and Drawing

3351

-2.23

-2.28

rising

F

-2.04

-1.81

Nonferrous Wire Drawing and Insulating

3357

-3.48

-2.17

stable

F

5.01

5.68

Heating Equipment, except Electric

3433

0.81

1.07

stable

C

-1.62

-0.82

Fabricated Plate Work, Boiler Shops

3443

1.13

0.99

stable

F

-3.15

-2.05

Bolts, Nuts, Rivets and Washers

3452

0.14

0.11

stable

F

5.66

6.10

Industrial Valves

3491

1.31

1.38

stable

A

-2.07

-1.59

Fluid Power Valves and Hose Fittings

3492

1.08

1.16

stable

B

-2.07

-1.59

Other Valves and Pipe Fittings

3494

0.76

1.71

stable

C

-2.07

-1.59

Miscellaneous Fabricated Wire Products

3496

-0.17

-0.24

stable

F

-0.29

-0.09

Fabricated Pipe and Fittings

3498

0.38

0.87

stable

D

-2.07

-1.59

Ball and Roller Bearings

3562

0.87

1.07

falling

C

0.41

0.48





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