Cost Trends

Between March and June, prices for many key commodities have been on the rebound. The result: inflation has started to rear its ugly head, creating cost control concerns for many industries that make the equipment and tools that plant engineers use. For example, with prices for steel heating up, makers of materials handling equipment are beginning to experience an upturn in manufacturing costs.
By Staff September 15, 2002

Between March and June, prices for many key commodities have been on the rebound. The result: inflation has started to rear its ugly head, creating cost control concerns for many industries that make the equipment and tools that plant engineers use.

For example, with prices for steel heating up, makers of materials handling equipment are beginning to experience an upturn in manufacturing costs. Although it’s unlikely higher costs translated into higher product prices over the summer months, buyers should be on guard this autumn. Since the announcement of tariffs on imported steel, materials handling industries have experienced erosion in margins that can be traced directly to increased spending on steel. In three of these industries, margin losses are approaching $1 for each $100 of product sold.

Makers of conveyors and conveying equipment (SIC 3535) face the most serious inflation challenge. Since March, per-unit spending on manufacturing has increased 0.77% while industry product prices have tumbled 0.87%. This escalation disparity has lowered margins by 96 cents for each $100 of product sold. About 4/5 of this margin loss can be attributed to an increase in raw materials costs. A roundup of 3-month cost increases for key inputs shows: carbon sheet and strip up 9.47%; carbon steel bars up 2.11%; and other carbon steel shapes up 3.67%. While all of this is clearly bad news for producers, higher costs should play a limited role in negotiations. Thinking Cap Solutions’ cost model calculates that margins in SIC 3535 remain above normal. The same can be said for margins in the elevator (SIC 3534) and hoist, crane and monorail (SIC 3536) industries. Makers of industrial lift trucks (SIC 3537), on the other hand, face below-average margins.

Price/cost/demand roundup

Average Product Prices Direct Mfg. Costs Growth in U.S. End Markets
Industry SIC Mar 02 June 02 Costs are… Grade Mar 02 June 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.

Other Hand and Edge Tools 3423 3.58 3.32 rising B -2.99 -4.32
Hand Saws and Saw Blades 3425 -0.70 -0.50 rising D -1.96 -1.98
Other Hardware 3429 1.77 1.56 rising B -2.91 -3.20
Other Power Transmission Equipment 3568 1.88 1.88 rising A -7.14 -5.93
Conveyors and Conveying Equipment 3535 1.50 1.24 stable B -5.47 -6.86
Hoists, Cranes and Monorails 3536 1.32 0.92 stable A -2.71 -4.21
Industrial Trucks and Tractors 3537 0.89 0.20 stable D -5.29 -6.52
Metal-Cutting Machine Tools 3541 -3.64 -5.71 stable F- -8.77 -7.73
Machine Tool Accessories 3545 1.85 1.55 stable D -6.42 -4.79
Power Driven Hand Tools 3546 1.98 1.26 stable D -1.02 -1.55
Welding Apparatus 3548 1.88 1.78 rising B -3.94 -2.60
Pumps and Pumping Equipment 3561 2.72 3.06 stable A -3.73 -3.73
Air and Gas Compressors 3563 2.33 2.08 stable A -3.73 -3.73
Speed Changers, Drives and Gears 3566 1.79 1.57 stable B -7.14 -5.93
Transformers 3612 -1.56 -1.60 stable F -8.34 -6.97
Motors and Generators 3621 0.31 0.07 rising F -4.31 -3.04
Process Control Instruments 3823 1.48 1.37 stable B -2.99 -1.81
Fluid Meters and Counting Devices 3824 0.48 0.11 stable C -2.99 -1.81
Instruments to Measure Electricity 3825 0.70 0.90 stable D -8.48 -6.68