Inflation expected for operating materials and supplies

Plant engineers can expect a steady dose of inflation for operating materials and supplies in 2003. Upward price pressures are strong for 13 industries. The key to the price outlook lies in our understanding of the underlying cost and margin challenges that manufacturers face. In 2003, the PLANT ENGINEERING operating materials and supplies price index rose 1.

04/08/2004


Plant engineers can expect a steady dose of inflation for operating materials and supplies in 2003. Upward price pressures are strong for 13 industries.

The key to the price outlook lies in our understanding of the underlying cost and margin challenges that manufacturers face. In 2003, the PLANT ENGINEERING operating materials and supplies price index rose 1.1%, but manufacturing costs grew 3.4%. The result of a persistent price/cost escalation mismatch has been to bring margins down into dangerous territory. Indeed, analysis of manufacturing-related margins shows four industries sporting record F-minus grades and nine others with an F.

Consider the case of the drawn and rolled copper products (SIC 3351). Here we see an industry that has been hammered by hikes in materials costs as well as energy prices. Domestic materials for this industry jumped 6.85% in 2003, while costs for imports increased an even faster 7.99%.

Meanwhile, energy costs for manufacturing of all products grew in most cases by double digits. Fabricators of copper products as well as steel plate work suffered the most in 2003 as energy costs for these two industries soared 11.63% and 12.06%, respectively. The only industries to be hurt even more by high energy costs were in the chemicals sector. Here we see that energy cost inflation hit 17.24% for makers of surface active agents.

The price forecasts shown here were calculated in November 2003, before the fourth-quarter data were complete. Manufacturer prices generally are tending to outstrip our forecasts, so expect upward revisions ahead. In future columns we will explore the 2004 and 2005 outlook for underlying costs as well as producer prices, but we will be shifting from SIC to NAICS codes.

Price/cost/demand roundup

Major Components of Manufacturing Costs

Average Product Prices

Annual % Change in 2003

Annual % Change

Industry

SIC

Domestic materials

Imported materials

Production labor

Energy

2003

Forecast 2004

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.
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.
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: ebaatz@ice-alert.com).

Wood Pallets and Skids

2448

3.62

6.71

3.06

10.54

2.48

na

Polishes and Sanitation Goods

2842

3.98

0.97

2.75

11.81

0.68

0.80

Surface Active Agents

2843

5.11

2.11

2.75

17.24

1.14

1.15

Adhesives and Sealants

2891

6.33

2.99

2.15

11.95

0.78

1.06

Lubricating Oils and Greases

2992

3.45

1.52

0.79

15.45

3.21

2.40

Rubber and Plastics Hose and Belting

3052

2.86

2.04

2.67

12.14

2.23

1.25

Abrasive Products

3291

2.84

2.36

4.57

7.35

0.28

0.70

Steel Wire and Related Products

3315

2.64

2.16

2.71

10.72

2.24

0.50

Copper Rolling and Drawing

3351

6.85

7.99

0.42

11.63

1.98

1.60

Nonferrous Wire Drawing and Insulating

3357

4.31

5.70

0.87

8.26

0.46

1.00

Heating Equipment, except Electric

3433

1.39

2.66

3.09

10.39

1.69

1.00

Fabricated Plate Work, Boiler Shops

3443

1.72

3.63

4.94

12.06

0.22

0.75

Bolts, Nuts, Rivets and Washers

3452

1.58

3.88

2.14

10.16

0.16

0.45

Industrial Valves

3491

1.52

3.44

1.94

7.57

1.35

1.60

Fluid Power Valves and Hose Fittings

3492

1.54

3.44

2.11

6.82

1.35

1.80

Other Valves and Pipe Fittings

3494

1.93

3.68

2.84

10.91

2.70

1.40

Miscellaneous Fabricated Wire Products

3496

0.94

1.79

2.00

10.31

-0.10

0.40

Fabricated Pipe and Fittings

3498

1.40

3.44

2.00

10.54

1.05

1.10

Ball and Roller Bearings

3562

1.19

1.73

2.71

9.88

0.98

1.20





No comments
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2015 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
The Engineering Leaders Under 40 program identifies and gives recognition to young engineers who...
2016 Product of the Year; Diagnose bearing failures; Asset performance management; Testing dust collector performance measures
Safety for 18 years, warehouse maintenance tips, Ethernet and the IIoT, GAMS 2016 recap
2016 Engineering Leaders Under 40; Future vision: Where is manufacturing headed?; Electrical distribution, redefined
SCADA at the junction, Managing risk through maintenance, Moving at the speed of data
Safety at every angle, Big Data's impact on operations, bridging the skills gap
The digital oilfield: Utilizing Big Data can yield big savings; Virtualization a real solution; Tracking SIS performance
Applying network redundancy; Overcoming loop tuning challenges; PID control and networks
Driving motor efficiency; Preventing arc flash in mission critical facilities; Integrating alternative power and existing electrical systems
Package boilers; Natural gas infrared heating; Thermal treasure; Standby generation; Natural gas supports green efforts

Annual Salary Survey

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

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
This article collection contains several articles on the vital role of plant safety and offers advice on best practices.
This article collection contains several articles on the Industrial Internet of Things (IIoT) and how it is transforming manufacturing.
This article collection contains several articles on strategic maintenance and understanding all the parts of your plant.
click me