Inflation expected for operating materials and supplies
Plant engineers can expect a steady dose of inflation for operating materials and supplies in 2003. Upward price pressures are strong for 13 industries. The key to the price outlook lies in our understanding of the underlying cost and margin challenges that manufacturers face. In 2003, the PLANT ENGINEERING operating materials and supplies price index rose 1.
Plant engineers can expect a steady dose of inflation for operating materials and supplies in 2003. Upward price pressures are strong for 13 industries.
The key to the price outlook lies in our understanding of the underlying cost and margin challenges that manufacturers face. In 2003, the PLANT ENGINEERING operating materials and supplies price index rose 1.1%, but manufacturing costs grew 3.4%. The result of a persistent price/cost escalation mismatch has been to bring margins down into dangerous territory. Indeed, analysis of manufacturing-related margins shows four industries sporting record F-minus grades and nine others with an F.
Consider the case of the drawn and rolled copper products (SIC 3351). Here we see an industry that has been hammered by hikes in materials costs as well as energy prices. Domestic materials for this industry jumped 6.85% in 2003, while costs for imports increased an even faster 7.99%.
Meanwhile, energy costs for manufacturing of all products grew in most cases by double digits. Fabricators of copper products as well as steel plate work suffered the most in 2003 as energy costs for these two industries soared 11.63% and 12.06%, respectively. The only industries to be hurt even more by high energy costs were in the chemicals sector. Here we see that energy cost inflation hit 17.24% for makers of surface active agents.
The price forecasts shown here were calculated in November 2003, before the fourth-quarter data were complete. Manufacturer prices generally are tending to outstrip our forecasts, so expect upward revisions ahead. In future columns we will explore the 2004 and 2005 outlook for underlying costs as well as producer prices, but we will be shifting from SIC to NAICS codes.
|Major Components of Manufacturing Costs||Average Product Prices|
|Annual % Change in 2003||Annual % Change|
|Industry||SIC||Domestic materials||Imported materials||Production labor||Energy||2003||Forecast 2004|
|1 Average product price changes are calculated from the producer price index for each 4-digit SIC (standard industrial classification) industry from the U.S. Bureau of Labor Statistics.
2 Analyses of each industry’s direct manufacturing cost changes are from Thinking Cap Solutions, Inc.’s proprietary Industry Cost Escalation (ICE) model. The “grade” indicates that recent price/cost changes have produced record high (A+) margins to average margins (C) to record low (F-) margins for 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.
3 Growth in U.S. end markets data are from the ICE model and are estimates of output for the domestic end markets which purchase a given industry’s products.
All data prepared and presented by Thinking Cap Solutions, Inc., Port Angeles, WA (telephone: 360-452-6159; e-mail: firstname.lastname@example.org).
|Wood Pallets and Skids||2448||3.62||6.71||3.06||10.54||2.48||na|
|Polishes and Sanitation Goods||2842||3.98||0.97||2.75||11.81||0.68||0.80|
|Surface Active Agents||2843||5.11||2.11||2.75||17.24||1.14||1.15|
|Adhesives and Sealants||2891||6.33||2.99||2.15||11.95||0.78||1.06|
|Lubricating Oils and Greases||2992||3.45||1.52||0.79||15.45||3.21||2.40|
|Rubber and Plastics Hose and Belting||3052||2.86||2.04||2.67||12.14||2.23||1.25|
|Steel Wire and Related Products||3315||2.64||2.16||2.71||10.72||2.24||0.50|
|Copper Rolling and Drawing||3351||6.85||7.99||0.42||11.63||1.98||1.60|
|Nonferrous Wire Drawing and Insulating||3357||4.31||5.70||0.87||8.26||0.46||1.00|
|Heating Equipment, except Electric||3433||1.39||2.66||3.09||10.39||1.69||1.00|
|Fabricated Plate Work, Boiler Shops||3443||1.72||3.63||4.94||12.06||0.22||0.75|
|Bolts, Nuts, Rivets and Washers||3452||1.58||3.88||2.14||10.16||0.16||0.45|
|Fluid Power Valves and Hose Fittings||3492||1.54||3.44||2.11||6.82||1.35||1.80|
|Other Valves and Pipe Fittings||3494||1.93||3.68||2.84||10.91||2.70||1.40|
|Miscellaneous Fabricated Wire Products||3496||0.94||1.79||2.00||10.31||-0.10||0.40|
|Fabricated Pipe and Fittings||3498||1.40||3.44||2.00||10.54||1.05||1.10|
|Ball and Roller Bearings||3562||1.19||1.73||2.71||9.88||0.98||1.20|