Model tells vastly different stories

A new cost model from Thinking Cap Solutions shows a distinct dichotomy has emerged in the industries that make plant construction and maintenance supplies. In the table on the right, we see nine industries with a bad grade (F- to D) and five with an A grade for industry margins. That means plant engineers will be facing two very different environments when time for negotiating a new deal arr...

11/15/2002


A new cost model from Thinking Cap Solutions shows a distinct dichotomy has emerged in the industries that make plant construction and maintenance supplies. In the table on the right, we see nine industries with a bad grade (F- to D) and five with an A grade for industry margins. That means plant engineers will be facing two very different environments when time for negotiating a new deal arrives.

Buyers of flat glass may find treading carefully to be the best bet when dealing with suppliers. This industry saw its manufacturing costs rise 4.3% over the last six months. Meanwhile, average product prices charged by the flat glass industry declined 2.5%. This cost/price trend has hit manufacturing margins hard. Indeed, to restore margins to average levels requires a solid 5.4% price hike. Suppliers will also be anxious for margin-stabilizing price hikes in the gypsumboard industry, which requires a 9.2% price increase, and the general sawmills industry, which could use a 2.6% upward price correction.

On the flip side, plant managers may find some negotiation leverage when buying hardwood plywood and millwork. The industries that make these products can withstand a 3.4% to 3.8% cut in average prices before margins retreat to average levels. And despite the cost pressures created by steel tariffs, some bargaining opportunities may be found in sheet metal work, steel pipe and tubes, and metal doors. The three industries that make these products could weather average price cuts of 2.3% (for steel pipe) to 1.4% (for sheet metal).

Finally, are we seeing a signal of recovery at last? The end markets that buy refrigeration and heating equipment grew 1.5% in the 12 months ending August 2002. That number sticks out like a night beacon among the long list of declining end markets.

Price/cost/demand roundup

Average Product Prices

Average Product Prices

Direct Mfg. Costs

Direct Mfg. Costs

Growth in U.S. End Markets

Growth in U.S. End Markets

Change, %, During 12-Mo Ending...

Change, %, During 12-Mo Ending...

and Margins Grade

and Margins Grade

Change, %, During 12-Mo Ending...

Change, %, During 12-Mo Ending...

Industry

SIC

May 02

August 02

Costs are...

Grade

May 02

August 02


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.

General Sawmills and Planing Mills

2421

-0.17

-1.84

stable

D

-2.33

-1.92

Millwork

2431

2.02

1.22

stable

A

-3.17

-3.12

Hardwood Veneer and Plywood

2435

0.21

0.41

stable

A

-3.12

-2.79

Softwood Veneer and Plywood

2436

3.04

-2.38

stable

D

-3.12

-2.79

Metal Partitions and Fixtures

2542

0.08

-0.50

rising

F

-0.32

-1.27

Paints and Allied Products

2851

1.99

1.61

stable

B

-1.45

-0.42

Flat Glass

3211

-1.76

-2.46

stable

F

-4.01

0.04

Other Structural Clay Products

3259

4.02

3.96

stable

A

-3.05

-3.12

Gypsum Products

3275

-8.28

3.63

stable

D

-3.29

-3.12

Mineral Wool

3296

0.51

0.61

stable

C

-4.56

-3.49

Steel Pipe and Tubes

3317

-2.54

-0.39

rising

A

-5.63

-4.07

Plumbing Fittings and Brass Goods

3432

-1.35

-0.81

stable

C

-3.09

-3.01

Metal Doors, Sash and Trim

3442

0.92

0.68

stable

B

-2.63

-2.87

Sheet Metal Work

3444

-0.51

0.01

rising

B

-4.58

-2.15

Refrigeration and Heating Equipment

3585

0.41

0.51

stable

D

0.08

1.48

Current-Carrying Wiring Devices

3643

-1.45

-1.03

stable

D

-5.52

-3.57

Noncurrent-Carrying Wiring Devices

3644

1.48

1.68

rising

A

-5.52

-3.57

Commercial Lighting Fixtures

3646

-0.66

-0.28

stable

F

-1.33

-1.24

Environmental Controls

3822

0.07

0.08

stable

F-

-1.20

-0.68





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