Prices have room to fall
Buyers of factory operating materials and supplies have a near universal opportunity these days to argue for price cuts. Among 19 industries that we studied, 16 can stand to cut average industry product prices while still maintaining reasonable margins. The lubricating oils and greases (SIC 2992) industry provides the most dramatic example.
Buyers of factory operating materials and supplies have a near universal opportunity these days to argue for price cuts. Among 19 industries that we studied, 16 can stand to cut average industry product prices while still maintaining reasonable margins. The lubricating oils and greases (SIC 2992) industry provides the most dramatic example. Here, thanks to the fact that costs of manufacturing are falling fast, the industry can afford a whopping 10.2% price cut without pushing margins below July 2000 levels. To restore margins to average levels held over the past five years, prices in SIC 2992 still can fall 2%.
The fact of the matter is, many industries that make factory operating supplies enjoyed pumped up margins thanks to a combination of falling costs and steady or slightly inflated prices for the products sold. So looking at the margin grade in the accompanying table will tell only part of the story. Certainly, any industry with an A or A+ grade enjoys higher than average margins, so prices have room to fall. Some industries with a C grade (like lubricating oils and greases) also have leeway to drop prices. But buyers will have to proceed cautiously.
For example, to bring margins back to year-ago levels, producers of adhesives and sealants can afford a 5.9% price decline. But to set margins back to their five-year average level, adhesives and sealants prices must rise 0.4%.
Meanwhile, not all industries enjoy the opportunity to lower prices. The industries that make surfactants (SIC 2843), abrasive products (SIC 3291) and steel wire and related products (SIC 3315) are under pressure. To restore margins to the average levels held over the past five years, these three industries would have to hike average industry prices by 2.7%, 4.2% and 2.3%, respectively.
|Industry||SIC||Average Product Prices||Average Product Prices||Direct Mfg. Costs||Direct Mfg. Costs||Growth in U.S. end Markets||Growth in U.S. end Markets|
|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.|
|Wood pallets and skids||2448||0.31||0.54||Falling||A||-0.01||-1.94|
|Polishes and sanitation goods||2842||0.85||0.94||Falling||D||2.38||2.05|
|Surface active agents||2843||2.57||2.78||Falling||D||-1.45||-3.19|
|Adhesives and sealants||2891||2.57||3.06||Falling||C||11.04||7.11|
|Lubricating oils and greases||2992||8.53||7.63||Falling Fast||C||7.74||5.04|
|Rubber and plastics hose and belting||3052||1.40||2.31||Stable||C||3.42||1.20|
|Steel wire and related products||3315||-0.41||-1.13||Falling||F||3.14||3.17|
|Copper rolling and drawing||3351||3.40||1.44||Falling||B||32.94||22.75|
|Nonferrous wire drawing and insulating||3357||4.22||1.84||Falling||C||32.64||23.66|
|Heating equipment, except electric||3433||1.27||1.24||Stable||A||1.38||1.43|
|Fabricated plate work, boiler shops||3443||1.20||1.07||Stable||A||4.59||2.94|
|Bolts, nuts, rivets and washers||3452||-0.07||0.02||Stable||C||3.35||3.44|
|Fluid power valves and hose fittings||3492||1.50||1.49||Stable||B||2.02||1.43|
|Other valves and pipe fittings||3494||1.18||2.77||Falling||A||2.02||1.43|
|Miscellaneous fabricated wire products||3496||0.01||0.12||Stable||C||8.31||5.37|
|Fabricated pipe and fittings||3498||2.54||1.89||Falling||A+||2.02||1.43|
|Ball and roller bearings||3562||1.58||1.58||Stable||A||5.74||2.95|