Suppliers can’t afford to reduce prices
Three months ago we wrote that buyers of factory operating materials and supplies had a great opportunity to argue for price cuts. Back then, among 19 industries that we studied, 16 could afford to cut average industry product prices while still maintaining reasonable margins. Now, only four industries can do so. That means plant engineers will find more vendors of operating supplies standing in line with price hike demands.
Only three industries are enjoying inflation-adjusted margins that can be considered above average (as evidenced by the lack of A and B grades in the direct cost/margin column of the PLANT ENGINEERING table). The only industry with an A grade is the fabricated plate work (SIC 3443) industry.
Since SIC 3443 is one of the few suppliers that offer much room for price discounts, let’s look at this in detail. Producers of fabricated plate work scored their third price increase in four months this past July. On the strength of a 7% jump in fin tube tags, average industry tags rose 0.8% in July and are now perched 2% above March ’02 price levels. About three-quarters of the revenue from July’s price hike is headed for the bottom line while the rest will be used to offset a 0.2% uptick in per-unit manufacturing costs.
Buyers will see additional price hikes for plate work ahead, but the gains will be smaller as the effects of import tariffs lessen. Our call: expect prices charged for fabricated plate work to rise 0.5% in Q3 and another 0.24% in the final quarter. In 2003, average plate work prices will rise 1.5%.
With current industry margins above normal, suppliers are in a position to discount. Industry prices currently can withstand a 1.7% cut. On the demand front, end markets will remain weak in Q4 and shopping around for better deals could pay off.
|Average Product Prices||Direct Mfg. Costs||Growth in U.S. End Markets|
|Change, %, During 12-Mo Ending…||and Margins Grade||Change, %, During 12-Mo Ending…|
|Industry||SIC||Apr 02||July 02||Costs are…||Grade||Apr 02||July 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.|
|Wood Pallets and Skids||2448||-0.79||-1.73||rising||C||-5.23||-4.25|
|Polishes and Sanitation Goods||2842||0.97||0.32||stable||C||2.04||1.98|
|Surface Active Agents||2843||0.63||-0.40||rising||D||-2.13||-0.69|
|Adhesives and Sealants||2891||2.51||1.89||rising||C||-3.86||-0.73|
|Lubricating Oils and Greases||2992||4.24||3.28||rising||C||-3.98||-2.79|
|Rubber and Plastics Hose and Belting||3052||2.66||1.72||rising||C||-3.31||-1.63|
|Steel Wire and Related Products||3315||-2.11||-1.15||stable||F||-0.31||-2.39|
|Copper Rolling and Drawing||3351||-7.07||-6.76||stable||F||-8.42||-2.87|
|Nonferrous Wire Drawing and Insulating||3357||-4.35||-4.92||stable||F||-6.39||-2.15|
|Heating Equipment, except Electric||3433||1.03||0.87||stable||C||-0.70||-2.35|
|Fabricated Plate Work, Boiler Shops||3443||0.63||0.78||stable||A||-6.08||-6.83|
|Bolts, Nuts, Rivets and Washers||3452||0.22||0.22||stable||F-||-0.16||-2.38|
|Fluid Power Valves and Hose Fittings||3492||1.20||1.05||stable||C||-3.08||-4.14|
|Other Valves and Pipe Fittings||3494||4.92||2.91||stable||B||-3.08||-4.14|
|Miscellaneous Fabricated Wire Products||3496||0.07||-0.05||stable||D||-3.33||-1.94|
|Fabricated Pipe and Fittings||3498||0.07||-0.30||stable||C||-3.08||-4.14|
|Ball and Roller Bearings||3562||0.22||0.13||rising||D||-4.81||-4.04|