Model tells vastly different stories

A new cost model from Thinking Cap Solutions shows a distinct dichotomy has emerged in the industries that make plant construction and maintenance supplies. In the table on the right, we see nine industries with a bad grade (F- to D) and five with an A grade for industry margins. That means plant engineers will be facing two very different environments when time for negotiating a new deal arr...

By Staff November 15, 2002

A new cost model from Thinking Cap Solutions shows a distinct dichotomy has emerged in the industries that make plant construction and maintenance supplies. In the table on the right, we see nine industries with a bad grade (F- to D) and five with an A grade for industry margins. That means plant engineers will be facing two very different environments when time for negotiating a new deal arrives.

Buyers of flat glass may find treading carefully to be the best bet when dealing with suppliers. This industry saw its manufacturing costs rise 4.3% over the last six months. Meanwhile, average product prices charged by the flat glass industry declined 2.5%. This cost/price trend has hit manufacturing margins hard. Indeed, to restore margins to average levels requires a solid 5.4% price hike. Suppliers will also be anxious for margin-stabilizing price hikes in the gypsumboard industry, which requires a 9.2% price increase, and the general sawmills industry, which could use a 2.6% upward price correction.

On the flip side, plant managers may find some negotiation leverage when buying hardwood plywood and millwork. The industries that make these products can withstand a 3.4% to 3.8% cut in average prices before margins retreat to average levels. And despite the cost pressures created by steel tariffs, some bargaining opportunities may be found in sheet metal work, steel pipe and tubes, and metal doors. The three industries that make these products could weather average price cuts of 2.3% (for steel pipe) to 1.4% (for sheet metal).

Finally, are we seeing a signal of recovery at last? The end markets that buy refrigeration and heating equipment grew 1.5% in the 12 months ending August 2002. That number sticks out like a night beacon among the long list of declining end markets.

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

Change, %, During 12-Mo Ending…
Change, %, During 12-Mo Ending…
and Margins Grade
and Margins Grade
Change, %, During 12-Mo Ending…
Change, %, During 12-Mo Ending…

Industry
SIC
May 02
August 02
Costs are…
Grade
May 02
August 02

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
-0.17
-1.84
stable
D
-2.33
-1.92

Millwork
2431
2.02
1.22
stable
A
-3.17
-3.12

Hardwood Veneer and Plywood
2435
0.21
0.41
stable
A
-3.12
-2.79

Softwood Veneer and Plywood
2436
3.04
-2.38
stable
D
-3.12
-2.79

Metal Partitions and Fixtures
2542
0.08
-0.50
rising
F
-0.32
-1.27

Paints and Allied Products
2851
1.99
1.61
stable
B
-1.45
-0.42

Flat Glass
3211
-1.76
-2.46
stable
F
-4.01
0.04

Other Structural Clay Products
3259
4.02
3.96
stable
A
-3.05
-3.12

Gypsum Products
3275
-8.28
3.63
stable
D
-3.29
-3.12

Mineral Wool
3296
0.51
0.61
stable
C
-4.56
-3.49

Steel Pipe and Tubes
3317
-2.54
-0.39
rising
A
-5.63
-4.07

Plumbing Fittings and Brass Goods
3432
-1.35
-0.81
stable
C
-3.09
-3.01

Metal Doors, Sash and Trim
3442
0.92
0.68
stable
B
-2.63
-2.87

Sheet Metal Work
3444
-0.51
0.01
rising
B
-4.58
-2.15

Refrigeration and Heating Equipment
3585
0.41
0.51
stable
D
0.08
1.48

Current-Carrying Wiring Devices
3643
-1.45
-1.03
stable
D
-5.52
-3.57

Noncurrent-Carrying Wiring Devices
3644
1.48
1.68
rising
A
-5.52
-3.57

Commercial Lighting Fixtures
3646
-0.66
-0.28
stable
F
-1.33
-1.24

Environmental Controls
3822
0.07
0.08
stable
F-
-1.20
-0.68