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