Margin stress may mean higher prices

Plant engineers who are buying construction and maintenance supplies in the months ahead had better beware of some potentially grouchy suppliers.
By Staff February 1, 2001

Plant engineers who are buying construction and maintenance supplies in the months ahead had better beware of some potentially grouchy suppliers. That’s because of the 19 construction supply industries that we track, 10 are saddled with a margin “grade” of D or F. Failing margin grades mean these industries are experiencing inflation-related distress to their margins.

Consider, for example, the general sawmills (SIC 2421) industry. Between November 1999 and November 2000, average product prices in sawmills fell 4.1%. Meanwhile, direct manufacturing costs in sawmills fell only 0.3%. Buyers of sawmill products will have a tough time mounting a cost-based argument for avoiding price hikes.

Unfortunately, the news ahead for buyers of environmental controls isn’t looking too good either. Since the start of this year, producers of automatic building, refrigeration, and appliance controls (SIC 3822) have held prices in check while their per-unit manufacturing costs have increased 2.8%.

Price/cost/demand roundup

IndustrySICAverage Product Prices1Change, % During 12-Mo ending.Apr 00Average Product Prices1Change, % During 12-Mo ending.Jul 00Direct Mfg. CostsDirect Mfg. CostsGrowth in U.S. End Markets3Change, % During 12-Mo. ending.Apr 00Growth in U.S. End Markets3Change, % During 12-Mo. ending.Jul 00
General sawmills and planing mills 2421 -0.14 -4.12 Stable D 2.79 1.80
Millwork 2431 1.23 0.80 Falling A+ 5.62 4.83
Hardwood veneer and plywood 2435 1.75 1.72 Falling A+ 3.83 3.26
Softwood veneer and plywood 2436 -12.20 -15.00 Falling F 3.83 3.26
Metal partitions and fixtures 2542 0.57 0.46 Falling C 6.17 5.22
Paints and allied products 2851 1.82 2.23 Falling D 5.69 4.30
Flat glass 3211 0.69 1.54 Rising F- 25.91 28.98
Other structural clay products 3259 2.92 3.70 Stable A 6.20 5.43
Gypsum products 3275 10.69 1.13 Stable F 2.80 2.12
Mineral wool 3296 1.71 -1.98 Stable D 4.87 4.06
Steel pipe and tubes 3317 2.14 4.21 Falling A 6.79 6.75
Plumbing fittings and brass goods 3432 2.63 2.74 Falling B 5.49 4.70
Metal doors, sash, and trim 3442 1.45 1.77 Falling C 5.17 4.39
Sheet metal work 3444 0.69 1.11 Falling C 23.38 25.30
Refrigeration and heating equipment 3585 -0.42 -0.29 Stable F 5.30 2.74
Current-carrying wiring devices 3643 -0.17 -0.61 Stable F 21.55 21.94
Noncurrent-carrying wiring devices 3644 0.46 0.89 Stable C 21.55 21.94
Commercial lighting fixtures 3646 -0.32 0.11 Stable D 7.13 6.35
Environmental controls 3822 -0.18 0.18 Stable D 5.74 4.66

1Average 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.

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.

3Growth 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: ebaatz@ice-alert.com).