Building up the price of materials
Spring has sprung, and producers of building materials are off and running. From January to February, 10 out of 19 industries in our plant construction and maintenance supplies group pushed through price hikes. Two that increased average product prices most dramatically included the softwood plywood industry, with a 4.3% monthly price hike, and gypsum products, with a 1.9% increase.
In many cases, higher tags have a solid cost-based foundation. Average and even seriously below average margins are a common ailment. One coping strategy is to increase prices. In the most extreme case, in order to restore manufacturing-related margins to average levels, the typical manufacturer of gypsumboard would need to push though a price increase of 11.5%. Softwood plywood producers, meanwhile, would require an average price hike of just 1.7% to achieve the same objective.
Some inflation hot spots, however, may be worth fighting. One possible battlefield is the noncurrent-carrying wiring devices industry. In February producers in this industry hit buyers with a 1.3% price increase. But margins in SIC 3644 have been rising steadily since September ’00 and now stand well above normal. Price target analysis from Thinking Cap Solutions suggests SIC 3644 can afford to cut tags by 3.2%, which would bring margins back to average levels. Other industries that enjoy above-average margins along with the price cuts that would restore margins to average levels include: millwork, which can withstand a 3.7% average price cut; hardwood plywood, cut 3.2%; paints, cut 5.8%; other structural clay products, cut 5.2%; and metal doors, sash and trim, cut 1.6%.
|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…|
|Industry||SIC||Nov 01||Feb 02||Costs are…||Grade||Nov 01||Feb 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||-4.75||-1.71||stable||C||-2.04||-1.14|
|Hardwood Veneer and Plywood||2435||0.46||-0.02||rising||A||-1.25||-0.93|
|Softwood Veneer and Plywood||2436||-3.64||0.47||stable||C||-1.25||-0.93|
|Metal Partitions and Fixtures||2542||0.81||0.50||stable||A||0.54||0.46|
|Paints and Allied Products||2851||2.37||2.27||rising||A||-2.64||-1.25|
|Other Structural Clay Products||3259||7.23||5.59||stable||A||2.08||1.77|
|Steel Pipe and Tubes||3317||-2.02||-3.05||stable||C||-4.91||-5.65|
|Plumbing Fittings and Brass Goods||3432||-0.83||-1.48||stable||C||1.48||1.39|
|Metal Doors, Sash and Trim||3442||1.23||1.09||stable||B||1.30||1.33|
|Sheet Metal Work||3444||-0.02||-0.47||stable||A||-0.29||-3.52|
|Refrigeration and Heating Equipment||3585||-0.05||0.20||stable||C||-3.54||-0.72|
|Current-Carrying Wiring Devices||3643||-0.90||-1.21||stable||F||0.76||-2.70|
|Noncurrent-Carrying Wiring Devices||3644||2.10||1.76||stable||A||0.76||-2.70|
|Commercial Lighting Fixtures||3646||-0.10||-0.28||stable||D||0.14||-0.11|