Margin stress may mean higher prices

Plant engineers who are buying construction and maintenance supplies in the months ahead had better beware of some potentially grouchy suppliers.

02/01/2001


Plant engineers who are buying construction and maintenance supplies in the months ahead had better beware of some potentially grouchy suppliers. That's because of the 19 construction supply industries that we track, 10 are saddled with a margin "grade" of D or F. Failing margin grades mean these industries are experiencing inflation-related distress to their margins.

Consider, for example, the general sawmills (SIC 2421) industry. Between November 1999 and November 2000, average product prices in sawmills fell 4.1%. Meanwhile, direct manufacturing costs in sawmills fell only 0.3%. Buyers of sawmill products will have a tough time mounting a cost-based argument for avoiding price hikes.

Unfortunately, the news ahead for buyers of environmental controls isn't looking too good either. Since the start of this year, producers of automatic building, refrigeration, and appliance controls (SIC 3822) have held prices in check while their per-unit manufacturing costs have increased 2.8%.

Price/cost/demand roundup

IndustrySICAverage Product Prices1Change, % During 12-Mo ending.Apr 00Average Product Prices1Change, % During 12-Mo ending.Jul 00Direct Mfg. CostsDirect Mfg. CostsGrowth in U.S. End Markets3Change, % During 12-Mo. ending.Apr 00Growth in U.S. End Markets3Change, % During 12-Mo. ending.Jul 00


General sawmills and planing mills


2421


-0.14


-4.12


Stable


D


2.79


1.80


Millwork


2431


1.23


0.80


Falling


A+


5.62


4.83


Hardwood veneer and plywood


2435


1.75


1.72


Falling


A+


3.83


3.26


Softwood veneer and plywood


2436


-12.20


-15.00


Falling


F


3.83


3.26


Metal partitions and fixtures


2542


0.57


0.46


Falling


C


6.17


5.22


Paints and allied products


2851


1.82


2.23


Falling


D


5.69


4.30


Flat glass


3211


0.69


1.54


Rising


F-


25.91


28.98


Other structural clay products


3259


2.92


3.70


Stable


A


6.20


5.43


Gypsum products


3275


10.69


1.13


Stable


F


2.80


2.12


Mineral wool


3296


1.71


-1.98


Stable


D


4.87


4.06


Steel pipe and tubes


3317


2.14


4.21


Falling


A


6.79


6.75


Plumbing fittings and brass goods


3432


2.63


2.74


Falling


B


5.49


4.70


Metal doors, sash, and trim


3442


1.45


1.77


Falling


C


5.17


4.39


Sheet metal work


3444


0.69


1.11


Falling


C


23.38


25.30


Refrigeration and heating equipment


3585


-0.42


-0.29


Stable


F


5.30


2.74


Current-carrying wiring devices


3643


-0.17


-0.61


Stable


F


21.55


21.94


Noncurrent-carrying wiring devices


3644


0.46


0.89


Stable


C


21.55


21.94


Commercial lighting fixtures


3646


-0.32


0.11


Stable


D


7.13


6.35


Environmental controls


3822


-0.18


0.18


Stable


D


5.74


4.66


1Average 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.

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.

3Growth 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).





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