Bearings negotiations toughe

Prices for ball and roller bearings (SIC 3562) rose sharply in January, up 0.36%. ICE model data suggest the bulk of this increase went toward improving SIC 3562's bottom line. With the cost of making a typical unit of industry output rising just 0.
By Staff April 1, 2000

Prices for ball and roller bearings (SIC 3562) rose sharply in January, up 0.36%. ICE model data suggest the bulk of this increase went toward improving SIC 3562’s bottom line. With the cost of making a typical unit of industry output rising just 0.09% last month, calculations show producers stand to realize an inflation-adjusted margin gain of $0.14 for every $100 of product sold. Margins now have increased in three of the last four months.

Two important trends are currently shaping our price expectations for ball and roller bearings. First, demand strength for SIC 3562 continues to improve. For the year ending in January, U.S. end markets expanded 4.27%. This is the highest growth rate seen since late 1998 and provides a platform for higher prices. Second, inflation-adjusted margins remain a little below their year-ago level. This also puts pressure on producers to increase tags. Short-run analysis indicates producers need a 0.28% price hike on the average product to restore margins to their year-ago level.

Bottom line: The factory manager who wants to fight a price increase should keep their bearings supplier focused on the long run. Ask the supplier why it hasn’t shared previous inflation-related margin gains with its customers.

Price/cost/demand roundup

Average Product Prices 1 Change, %, During 12 Mo Ending…Direct Mfg. Costs 2 and Margins GradeGrowth in U.S. End Markets 3 Change, %, During 12 Mo Ending…
Industry SIC Dec 98 Mar 99 Costs are… Grade Dec 98 Mar 99
Wood pallets and skids 2448 0.18 0.00 Rising C 2.12 2.79
Polishes and sanitation goods 2842 1.86 1.11 Rising C 2.70 2.67
Surface active agents 2843 -1.56 -2.15 Stable D 0.56 1.10
Adhesives and sealants 2891 0.66 0.00 Rising D 11.30 11.94
Lubricating oils and greases 2992 0.53 1.07 Rising F 6.34 7.50
Rubber and plastics hose and belting* 3052 na na Stable na 6.71 6.94
Abrasive products 3291 -1.09 -1.25 Rising F 9.60 10.43
Steel wire and related products 3315 -2.19 -2.36 Rising B 5.35 4.98
Copper rolling and drawing 3351 -4.87 -0.09 Rising C 21.03 23.04
Nonferrous wire drawing and insulating 3357 -4.69 -3.46 Rising C 25.48 26.74
Heating equipment, except electric 3433 1.60 1.46 Stable B 4.71 4.09
Fabricated plate work, boiler shops 3443 1.76 1.45 Stable A 2.43 1.41
Bolts, nuts, rivets, and washers 3452 -0.22 -0.46 Stable C 5.48 5.09
Industrial valves 3491 2.66 2.13 Stable A 3.38 3.55
Fluid power valves and hose fittings 3492 1.77 1.90 Stable A 3.38 3.55
Other valves and pipe fittings 3494 1.35 1.21 Stable A 3.38 3.55
Miscellaneous fabricated wire products 3496 0.72 0.71 Stable A 8.61 9.31
Fabricated pipe and fittings 3498 -3.60 -2.65 Stable C 3.38 3.55
Ball and roller bearings 3562 1.03 0.84 Stable A 3.15 4.27

1 Average 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.

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+ means 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.

* Price data are not available (na) for rubber hose and belting and cost data from the ICE model are shown instead.

All data prepared and presented by Thinking Cap Solutions Inc., Port Angeles, WA (telephone: 360-452-6159; email: thinkcap@olypen.com)