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Improved margins for supplies

Margins improved for nine industries that make factory operating materials and supplies and held steady for seven others. But plant engineers still face a challenging environment for buying supplies. Sporting a margin grade of F (see table, opposite), the surface active agents (SIC 2843) industry spends $57.

By Staff October 10, 2003

Margins improved for nine industries that make factory operating materials and supplies and held steady for seven others. But plant engineers still face a challenging environment for buying supplies.

Sporting a margin grade of F (see table, opposite), the surface active agents (SIC 2843) industry spends $57.42 on direct manufacturing for $100 worth of product, which is $2.37 above average. Producers will close half the profitability gap by the end of the 2003. The supplier’s best argument may be that a chemicals-driven cost increase of 8.3% between February ’02 and May ’03 was not redressed and led to a near-record low level of manufacturing-related margins.

The fabricated plate work industry also has an F grade. An analysis of margins suggests that suppliers have the cost justification for increasing prices by 1.4%. U.S. demand for metal plate work will see a dramatic improvement in 2004 as end-markets growth hits a year-over-year rate of 6.1% in 2004:Q3. Stronger end-markets won’t translate into stronger price hikes. Over the last few years, we’ve seen a disconnect between demand and prices thanks to competition from foreign suppliers. Tags for fabricated plate work will edge ahead 0.8% in 2004.

Ball and roller bearings manufacturers have done a better job stemming margin losses, as evidenced by their average C margin grade. In July 2003, the cost of making a unit of output in SIC 3562 fell 0.6% with the bulk of the decline due to a 1.5% drop in wage rates paid to factory workers. Producers generated additional savings from U.S.-made steel inputs. Cost savings did not translate into lower output prices in July. Indeed, buyers won’t see any price relief ahead. A battle between prices and costs will rage in the U.S. bearings industry. From 2003:Q4 to 2004:Q4 industry tags will rise 1.7% while costs will grow 1.3%.

Price/cost/demand roundup

Average Product Prices

Direct Mfg. Costs

Growth in U.S. End Markets

NC means data could not be computed.

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.

All data prepared and presented by Thinking Cap Solutions, Inc., Port Angeles, WA (telephone: 360-452-6159; e-mail: ebaatz@ice-alert.com).

Industry
SIC
April 03
July 03
Costs are…
Grade
April 03
July 03

Wood Pallets and Skids
2448
-0.97
0.48
rising
F-
-0.25
-0.31

Polishes and Sanitation Goods
2842
-0.23
0.15
stable
F
0.34
0.28

Surface Active Agents
2843
-1.05
-0.26
stable
F
0.64
0.23

Adhesives and Sealants
2891
0.02
0.08
falling
F
2.23
1.34

Lubricating Oils and Greases
2992
0.93
1.59
stable
A
0.27
0.18

Rubber and Plastics Hose and Belting
3052
0.83
1.66
stable
D
1.83
1.46

Abrasive Products
3291
0.06
0.40
stable
D
3.15
3.43

Steel Wire and Related Products
3315
1.21
1.45
stable
D
-1.85
-1.03

Copper Rolling and Drawing
3351
-2.23
-2.28
rising
F
-2.04
-1.81

Nonferrous Wire Drawing and Insulating
3357
-3.48
-2.17
stable
F
5.01
5.68

Heating Equipment, except Electric
3433
0.81
1.07
stable
C
-1.62
-0.82

Fabricated Plate Work, Boiler Shops
3443
1.13
0.99
stable
F
-3.15
-2.05

Bolts, Nuts, Rivets and Washers
3452
0.14
0.11
stable
F
5.66
6.10

Industrial Valves
3491
1.31
1.38
stable
A
-2.07
-1.59

Fluid Power Valves and Hose Fittings
3492
1.08
1.16
stable
B
-2.07
-1.59

Other Valves and Pipe Fittings
3494
0.76
1.71
stable
C
-2.07
-1.59

Miscellaneous Fabricated Wire Products
3496
-0.17
-0.24
stable
F
-0.29
-0.09

Fabricated Pipe and Fittings
3498
0.38
0.87
stable
D
-2.07
-1.59

Ball and Roller Bearings
3562
0.87
1.07
falling
C
0.41
0.48