Sellers of operating materials and supplies hit rough patch
If the folks who sell you operating materials and supplies say that manufacturers are having a tough time making a buck, you better believe it. In October 2003, five industries registered record-low levels of margins. A year ago, only one, bolts, nuts, rivets and washers, sported an F-minus margin grade.
If the folks who sell you operating materials and supplies say that manufacturers are having a tough time making a buck, you better believe it. In October 2003, five industries registered record-low levels of margins. A year ago, only one, bolts, nuts, rivets and washers, sported an F-minus margin grade. Topping that off, five industries saw their margin grades fall to F and two to D in October 2003.
The reason for these money-making woes has much to do with rising costs and general difficulties in hiking prices. The PLANT ENGINEERING operating materials and supplies price index increased a meager 0.7% in the 12-month period ending October 2003. Over the same time period and for the same market basket of products, our manufacturing cost index, up 3.2%, grew nearly five times faster than prices.
That upturn in costs explains why, despite generally weakened markets, 80% of the industries that make operating materials were able to push through at least some modest improvements in pricing. In fact, that meager 0.7% average price hike for all industries contrasts sharply with the 0.7% average price decline we saw in the 12-month period ending October 2002.
Nonetheless, some not sporting F grades have managed to transform higher tags into year-to-date margin improvements. Case in point: the plumbing valves and pipe fittings (SIC 3494) industry has increased its average product prices at nearly twice the rate of manufacturing costs, thereby generating a significant bottom-line windfall. Margins gained 71 cents for every $100 worth of product sold in the first three quarters of 2003. Even with an average C grade for margins, buyers of plumbing valves and fittings have a good opportunity to push for price cuts. Thinking Cap Solutions estimates a 0.6% to 1.4% price decline is possible without dropping margins into a danger zone.
Price/cost/demand roundup
| Average Product Prices1Change, %, During 12-Mo Ending… | Direct Mfg. Costs2and Margins Grade | Growth in U.S. End Markets3Change, %, During 12-Mo Ending… | |||||
| Industry | SIC | July 03 | Oct 03 | Costs are… | Grade | July 03 | Oct 03 |
| NC means data could not be computed. 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: ebaatz@ice-alert.com). |
|||||||
| Wood Pallets and Skids | 2448 | 0.48 | 1.66 | falling | F | -0.48 | -0.69 |
| Polishes and Sanitation Goods | 2842 | 0.02 | 0.42 | stable | F | 0.37 | 0.07 |
| Surface Active Agents | 2843 | -0.26 | 0.56 | stable | D | -0.02 | -0.62 |
| Adhesives and Sealants | 2891 | 0.04 | 0.44 | stable | D | 1.50 | 0.81 |
| Lubricating Oils and Greases | 2992 | 1.47 | 2.48 | stable | A | 0.53 | 0.35 |
| Rubber and Plastics Hose and Belting | 3052 | 1.66 | 2.04 | stable | C | 0.66 | 0.17 |
| Abrasive Products | 3291 | 0.45 | 0.49 | stable | F- | 4.91 | 5.16 |
| Steel Wire and Related Products | 3315 | 1.55 | 1.93 | rising | F | -1.15 | -0.76 |
| Copper Rolling and Drawing | 3351 | -2.30 | -0.01 | rising | F- | 0.87 | 1.82 |
| Nonferrous Wire Drawing and Insulating | 3357 | -2.24 | -0.81 | rising | F | 8.88 | 9.60 |
| Heating Equipment, except Electric | 3433 | 1.09 | 1.36 | stable | C | -1.08 | -0.88 |
| Fabricated Plate Work, Boiler Shops | 3443 | 0.95 | 0.62 | stable | F- | -2.19 | -1.58 |
| Bolts, Nuts, Rivets and Washers | 3452 | 0.17 | 0.17 | stable | F- | 8.57 | 8.87 |
| Industrial Valves | 3491 | 1.40 | 1.40 | stable | C | -1.84 | -1.59 |
| Fluid Power Valves and Hose Fittings | 3492 | 1.20 | 1.27 | stable | C | -1.84 | -1.59 |
| Other Valves and Pipe Fittings | 3494 | 1.64 | 2.32 | stable | C | -1.84 | -1.59 |
| Miscellaneous Fabricated Wire Products | 3496 | -0.24 | -0.18 | stable | F | -0.04 | -0.19 |
| Fabricated Pipe and Fittings | 3498 | 0.83 | 1.02 | stable | F- | -1.84 | -1.59 |
| Ball and Roller Bearings | 3562 | 1.07 | 1.04 | stable | F | -0.21 | -0.42 |
Do you have experience and expertise with the topics mentioned in this content? You should consider contributing to our WTWH Media editorial team and getting the recognition you and your company deserve. Click here to start this process.
