Suppliers can't afford to reduce prices
Three months ago we wrote that buyers of factory operating materials and supplies had a great opportunity to argue for price cuts. Back then, among 19 industries that we studied, 16 could afford to cut average industry product prices while still maintaining reasonable margins. Now, only four industries can do so.
Three months ago we wrote that buyers of factory operating materials and supplies had a great opportunity to argue for price cuts. Back then, among 19 industries that we studied, 16 could afford to cut average industry product prices while still maintaining reasonable margins. Now, only four industries can do so. That means plant engineers will find more vendors of operating supplies standing in line with price hike demands.
Only three industries are enjoying inflation-adjusted margins that can be considered above average (as evidenced by the lack of A and B grades in the direct cost/margin column of the PLANT ENGINEERING table). The only industry with an A grade is the fabricated plate work (SIC 3443) industry.
Since SIC 3443 is one of the few suppliers that offer much room for price discounts, let's look at this in detail. Producers of fabricated plate work scored their third price increase in four months this past July. On the strength of a 7% jump in fin tube tags, average industry tags rose 0.8% in July and are now perched 2% above March '02 price levels. About three-quarters of the revenue from July's price hike is headed for the bottom line while the rest will be used to offset a 0.2% uptick in per-unit manufacturing costs.
Buyers will see additional price hikes for plate work ahead, but the gains will be smaller as the effects of import tariffs lessen. Our call: expect prices charged for fabricated plate work to rise 0.5% in Q3 and another 0.24% in the final quarter. In 2003, average plate work prices will rise 1.5%.
With current industry margins above normal, suppliers are in a position to discount. Industry prices currently can withstand a 1.7% cut. On the demand front, end markets will remain weak in Q4 and shopping around for better deals could pay off.
Average Product Prices
Direct Mfg. Costs
Growth in U.S. End Markets
Change, %, During 12-Mo Ending...
and Margins Grade
Change, %, During 12-Mo Ending...
Wood Pallets and Skids
Polishes and Sanitation Goods
Surface Active Agents
Adhesives and Sealants
Lubricating Oils and Greases
Rubber and Plastics Hose and Belting
Steel Wire and Related Products
Copper Rolling and Drawing
Nonferrous Wire Drawing and Insulating
Heating Equipment, except Electric
Fabricated Plate Work, Boiler Shops
Bolts, Nuts, Rivets and Washers
Fluid Power Valves and Hose Fittings
Other Valves and Pipe Fittings
Miscellaneous Fabricated Wire Products
Fabricated Pipe and Fittings
Ball and Roller Bearings
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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