Steel wire industry struggles as lubricating oil shines

Inflation in operating materials and supplies has taken off, but the way that any single supplier handles the situation varies widely. Consider the vastly different outcomes in the steel wire and lubricating oil industries. Drawn steel wire prices increased 23.6% over the last 12 months, but did so without widespread support across major product lines.

10/01/2005


Inflation in operating materials and supplies has taken off, but the way that any single supplier handles the situation varies widely. Consider the vastly different outcomes in the steel wire and lubricating oil industries.

Drawn steel wire prices increased 23.6% over the last 12 months, but did so without widespread support across major product lines. In fact, tags for key products such as ferrous wire rope, cable and strand as well as nails and spikes have actually been on the decline.

Worse yet, average industry prices failed to keep pace with manufacturing costs. Since July '04, wire tags are up just 0.5% for each 1% rise in the cost of making a unit of output. As a result, industry margins are languishing. The typical steel wire supplier currently spends $69.75 to manufacture $100 of market-valued output. That's $1.98 above the industry's average spending level over the last five years and $3.64 above a year ago. Price target analysis shows average steel wire prices must increase 3% in order to generate an average return on manufacturing-related spending.

Meanwhile, prices for lubricating oils and greases currently are rising at a near-record 8.5% rate. This increase has more than offset rising manufacturing costs as tags increased 1.63% for each 1% rise in the amount spent to make a unit of output. Such a favorable pass-through ratio served to expand industry margins by $3.11 for each $100 of product sold.

This bottom-line windfall is being enhanced by a comfortable overhead position. Overhead spending sits $3.14 (per $100 of output) below average. The lubricating oil industry can afford to discount tags by 1.8% and still earn an average return on manufacturing costs. A price cut of 4.1% puts margins back to year-ago levels, which is quite a contrast from steel wire.

Price/cost/demand roundup

Operating Materials & 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

Industry

3 months ago

Current month

Costs are

Grade

3 months ago

Current month

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

Wood pallets

3.41

3.91

falling

B

2.03

2.19

Polishes & specialty cleaning preparations

0.08

0.32

rising

D

2.39

2.44

Surface active agents & related agents

1.76

3.08

rising

D

3.84

3.96

Adhesives

1.91

2.15

rising

F

3.02

2.96

Lubricating oils & greases

3.91

8.53

rising

A

2.88

2.81

Rubber & plastic hoses & belting

2.16

2.66

stable

B

4.92

4.10

Abrasives-coated products

-0.08

-0.13

rising

B

7.80

6.96

Steel wire drawing

15.29

23.64

falling

D

2.38

1.64

Copper rolling, drawing & extruding

20.39

25.03

rising

D

8.20

6.60

Insulated wire & cable

10.16

13.59

rising

F-

10.23

9.91

Heating equipment

2.19

2.93

stable

D

3.43

3.20

Fabricated metal plate work

3.10

6.39

stable

F

10.61

10.09

Bolts, nuts, screws, rivets & washers

2.34

3.86

falling

B

7.27

6.62

Industrial valves

2.84

4.00

stable

C

5.04

4.59

Fluid power valves & hose fittings

1.93

2.60

stable

F

5.04

4.59

Metal & plastic plumbing fixture fittings

1.50

2.11

stable

F

5.04

4.59

Metal cloth, fence & other wire products

5.23

8.50

falling

F

3.86

3.51

Fabricated metal pipes & fittings

11.37

18.07

falling

B

4.08

3.81

Ball & roller bearings

1.71

2.35

falling

B

5.59

4.88





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.
Each year, a panel of Control Engineering and Plant Engineering editors and industry expert judges select the System Integrator of the Year Award winners in three categories.
2017 Lubrication Guide; Software tools; Microgrids and energy strategies; Use robots effectively
Prescriptive maintenance; Hannover Messe 2017 recap; Reduce welding errors
Safety standards and electrical test instruments; Product of the Year winners; Easy and safe electrical design
Infrastructure for natural gas expansion; Artificial lift methods; Disruptive technology and fugitive gas emissions
Mobility as the means to offshore innovation; Preventing another Deepwater Horizon; ROVs as subsea robots; SCADA and the radio spectrum
Future of oil and gas projects; Reservoir models; The importance of SCADA to oil and gas
Diagnostic functions for system safety; Specifying industrial enclosures; Effective decision support for a crisis
Transformers; Electrical system design; Selecting and sizing transformers; Grounded and ungrounded system design, Paralleling generator systems
Natural gas for tomorrow's fleets; Colleges and universities moving to CHP; Power and steam and frozen foods

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.
The maintenance journey has been a long, slow trek for most manufacturers and has gone from preventive maintenance to predictive maintenance.
Featured articles highlight technologies that enable the Industrial Internet of Things, IIoT-related products and strategies to get data more easily to the user.
This digital report will explore several aspects of how IIoT will transform manufacturing in the coming years.
Maintenance Manager; California Oils Corp.
Associate, Electrical Engineering; Wood Harbinger
Control Systems Engineer; Robert Bosch Corp.
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
click me