Steel pipe and tubes earn high grade

Every month this column presents a snapshot of the industries that provide key supplies to plant engineers. This issue, we examine a single one in depth: steel pipe and tubes (SIC 3317). This industry gets an A in the "margins grade" column as the typical supplier of pipes and tubes has seen the prices charged for his products rise faster than the cost of manufacturing.
By Staff November 1, 2003

Every month this column presents a snapshot of the industries that provide key supplies to plant engineers. This issue, we examine a single one in depth: steel pipe and tubes (SIC 3317).

This industry gets an A in the “margins grade” column as the typical supplier of pipes and tubes has seen the prices charged for his products rise faster than the cost of manufacturing. In this case, SIC 3317 pushed through an average price hike of 13.2% from 1996 to the present. Over that same seven-year period, the total cost of manufacturing in SIC 3317 fell 1%. As a result, according to our analysis, now the industry is sitting on a $2.70 margin surplus for every $100 of product sold. Seems like a slam dunk for any buyer who wants to cut costs by hammering for a better price, right? Not exactly.

For one thing, overhead spending on nonproduction salaries and benefits as well as business services and consulting contracts grew 24.8%. Furthermore, the prices we examine in our monthly table represent an average for lots of different product lines. (These price data come from surveys conducted monthly by the U.S. Department of Labor). Product lines often behave quite differently from the average.

In August 2003, for example, prices for alloy steel pipe and tubing soared 30.5% from the same month a year ago. Prices for carbon steel mechanical tubing, meanwhile, declined 2.8%, and structural pipe and tubing made of the same material also fell 5.6%.

Nonetheless, the average data can lead to worthwhile price forecasts. In SIC 3317, we see aggregate prices falling 2.3% in 2004 after a 6.3% hike in 2003. Striking a better deal than average will always mean delving deeper into your supplier’s or distributor’s cost structure.

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 May 03 August 03 Costs are… Grade May 03 August 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).
General Sawmills and Planing Mills 2421 -2.26 -0.84 rising C -1.35 -2.02
Millwork 2431 0.23 0.39 stable C -1.43 -0.96
Hardwood Veneer and Plywood 2435 -0.91 -2.18 rising D -0.83 -0.85
Softwood Veneer and Plywood 2436 -6.20 -0.55 rising B -0.83 -0.85
Metal Partitions and Fixtures 2542 -0.39 0.11 rising F -2.48 -2.28
Paints and Allied Products 2851 1.69 2.09 stable B 1.02 0.69
Flat Glass 3211 -0.55 0.12 stable F 9.19 9.17
Other Structural Clay Products 3259 6.44 5.57 stable A -1.43 -0.97
Gypsum Products 3275 6.92 3.14 stable D -2.79 -2.64
Mineral Wool 3296 0.62 0.08 stable F- 0.24 0.90
Steel Pipe and Tubes 3317 8.92 9.16 stable A 1.09 0.32
Plumbing Fittings and Brass Goods 3432 0.68 0.81 stable F- -1.76 -1.38
Metal Doors, Sash and Trim 3442 0.94 1.07 stable C -2.31 -2.04
Sheet Metal Work 3444 1.97 1.67 rising D 5.38 5.62
Refrigeration and Heating Equipment 3585 0.38 0.38 stable F- 0.84 0.62
Current-Carrying Wiring Devices 3643 0.34 0.40 stable F- 3.08 3.83
Noncurrent-Carrying Wiring Devices 3644 1.02 -0.71 stable D 3.08 3.83
Commercial Lighting Fixtures 3646 0.72 1.34 stable D -1.16 -1.10
Environmental Controls 3822 0.14 0.11 stable F -1.55 -1.34

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