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.
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.
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
3 months ago
3 months ago
(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.
Polishes & specialty cleaning preparations
Surface active agents & related agents
Lubricating oils & greases
Rubber & plastic hoses & belting
Steel wire drawing
Copper rolling, drawing & extruding
Insulated wire & cable
Fabricated metal plate work
Bolts, nuts, screws, rivets & washers
Fluid power valves & hose fittings
Metal & plastic plumbing fixture fittings
Metal cloth, fence & other wire products
Fabricated metal pipes & fittings
Ball & roller bearings
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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