Softwood and steel pipe prices soar
Inflation is running red hot among the products that plant engineers have to buy in order to maintain and repair the factory. Among 21 industries in the PLANT ENGINEERING construction supplies price index, product price inflation accelerated among 17.
The softwood industry continued to lead the pack with a 48.7% price increase in February 2005. That’s up from a 17.1% rate set six months earlier. This time around, however, softwood producers can partially justify their price hikes by looking downstream in the supply chain: sawmills hiked their product prices 10.9% in February, up from 1.4% in August ’04. Other millwork producers also pushed through a big 7.7% price jump in February.
Worse yet, the inflation parade did not stop with wood products. Two of the most egregious price hikes in February included iron and steel tubes and pipes (up 17.4%) and noncurrent-carrying wiring devices (up 11.3%). These inflation trends are all the more startling because six months ago steel pipe prices had been increasing at a much more sedate 6.3% pace and noncurrent wiring device tags had been falling 0.5%.
Luckily, in the four industries mentioned above, underlying cost dynamics favor buyers. Indeed, returning the industry’s manufacturing margins to average levels held over the past five years means softwood plywood producers have room to cut prices by a whopping 19.7% on average. In the same fashion, sawmills could manage a 3.7% price drop. As for iron and steel tube manufacturers, the cost/price data shows the industry could weather a 12.9% average price decline. Makers of noncurrent carrying wiring devices could manage an average price drop of 6.2%, assuming no changes in productivity.
|Construction & maintenance supplies||Average Product Prices (1) % Change During 12 Months Ending||Direct Manufacturing Costs (2) and Margins Grade||Growth in U.S. End Markets (3) % Change During 12 Months Ending|
|Industry||3 Months Ago||Current month||Costs are||Grade||3 months ago||Current month|
|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: email@example.com).
|Wood windows & doors||0.76||1.36||rising||F||2.10||3.53|
|Other millwork (excl. windows & doors)||3.62||7.73||rising||D||2.41||3.97|
|Shelving & fixtures||1.22||3.77||rising||A||2.05||2.79|
|Sewer pipe & other structural clay prod.||2.63||1.89||rising||D||-0.39||1.68|
|Fiberglass & other mineral wool||0.22||1.22||stable||A||4.70||5.78|
|Iron & steel pipes & tubes||6.79||17.38||stable||A||6.86||6.94|
|Metal & plastic plumbing fixture fittings||0.53||0.60||stable||F||4.34||5.12|
|Metal windows & doors||0.86||1.13||stable||F||4.00||4.96|
|Sheet metal work||1.20||1.55||stable||F-||1.86||3.60|
|Current-carrying wiring devices||0.07||0.17||stable||C||2.80||3.32|
|Noncurrent-carrying wiring devices||-0.55||0.02||stable||F||6.49||6.98|
|Nonresidential electric lighting fixtures||1.81||11.31||stable||B||6.49||6.98|
|Automatic environmental controls||1.43||0.45||stable||C||0.79||2.32|