Industries face low margins

Plant engineers who have to buy construction and maintenance supplies are facing a veritable minefield of negotiation problems. That's because a whopping seven industries are suffering under-record or near-record-low manufacturing margins, as evidenced by the F and F- grades in our margin table. Topping the list of troubled industries, the current-carrying wiring devices (SIC 3644) industry sa...
By Staff May 6, 2003

Plant engineers who have to buy construction and maintenance supplies are facing a veritable minefield of negotiation problems. That’s because a whopping seven industries are suffering under-record or near-record-low manufacturing margins, as evidenced by the F and F- grades in our margin table.

Topping the list of troubled industries, the current-carrying wiring devices (SIC 3644) industry saw its average costs rise 3.3% between February 2002 and February 2003. Meanwhile, the prices charged for wiring products rose just 0.7%. This cost/price escalation mismatch lopped off $1.25 from industry margins for every $100 worth of product sold. Now, manufacturers in SIC 3644 are under pressure to hike prices anywhere between 2.2% and 4.1% in order to get margins back to year-ago or 5-yr average levels.

Producers of metal partitions and fixtures (SIC 2542) also sport an F- grade in our cost table. Margins here are at an all-time record low. Looking at the February 2003 data compared to a year ago, we see the cause for the margin meltdown: a huge 5.6% cost hike coupled with a meager 0.1% price increase. To get margins back in line with average levels, makers of metal shelving must hike tags by anywhere from 3.5% to 4.8%.

Now the question remains what leverage will suppliers in these industries have to stick it to the buyers? In the case of metal fixtures, the answer is not much. Here the end markets that buy metal fixtures continue to shrink, down 2.8% in the 12-month period ending February 2003. On the other hand, end markets for wiring devices have begun to grow again, up 1.8% in the 12-months ending February. This demand strength may embolden wire makers to try to push through price hikes.

Price/cost/demand roundup

Average Product Prices Average Product Prices Direct Mfg. Costs Direct Mfg. Costs Growth in U.S. End Markets Growth in U.S. End Markets
Industry SIC Nov 02 Feb 03 Costs are… Grade Nov 02 Feb 03
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 -1.46 -1.34 rising D -0.60 -0.70
Millwork 2431 0.62 0.10 rising B -2.13 -1.81
Hardwood Veneer and Plywood 2435 0.02 -0.09 rising C -1.17 -0.80
Softwood Veneer and Plywood 2436 -3.17 -3.67 rising D -1.17 -0.80
Metal Partitions and Fixtures 2542 -0.78 -0.72 stable F- -1.85 -2.83
Paints and Allied Products 2851 1.50 1.43 rising C -0.16 0.82
Flat Glass 3211 -2.83 -1.87 rising F 4.52 7.80
Other Structural Clay Products 3259 4.12 5.23 rising B -2.10 -1.80
Gypsum Products 3275 7.64 7.95 rising D -2.50 -2.87
Mineral Wool 3296 0.67 0.49 rising F -1.33 0.06
Steel Pipe and Tubes 3317 2.47 5.81 stable A+ -1.36 0.71
Plumbing Fittings and Brass Goods 3432 -0.25 0.35 stable D -2.58 -2.20
Metal Doors, Sash and Trim 3442 0.59 0.62 stable C -2.44 -2.60
Sheet Metal Work 3444 0.74 1.54 stable F 1.83 4.10
Refrigeration and Heating Equipment 3585 0.41 0.33 stable F -0.25 0.55
Current-Carrying Wiring Devices 3643 -0.65 -0.10 rising F- -0.19 1.81
Noncurrent-Carrying Wiring Devices 3644 1.34 1.54 rising F -0.19 1.81
Commercial Lighting Fixtures 3646 -0.34 -0.26 stable D -1.51 -1.54
Environmental Controls 3822 0.06 0.27 stable F -1.88 -1.74

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