Welding equipment industry sees margins increase

The green inflation light is flashing for industries that make factory equipment and tools. Among 19 industries in the PLANT ENGINEERING price index, inflation slowed down for only three. Fifteen industries, on the other hand, put the metal to the petal as the rate at which inflation sped up increased from March 2005 to June 2005.
By Staff September 1, 2005

The green inflation light is flashing for industries that make factory equipment and tools. Among 19 industries in the PLANT ENGINEERING price index, inflation slowed down for only three. Fifteen industries, on the other hand, put the metal to the petal as the rate at which inflation sped up increased from March 2005 to June 2005. Only one-saw blades and handsaws-cut its average product prices.

The top five price hike culprits can be found among manufacturers of conveyors (which registered a 4.7% increase in average product prices), mechanical power transmission equipment (4.6%), welding & soldering equipment (4.3%), cranes, hoists & monorail systems (3.8%), and speed changers, drives & gears (3.6%). The first three industries in this list (conveyors, transmission equipment, and welding equipment) have demonstrated the sharpest inflationary change compared to the 12-month period ending June 2004 as well.

Trying to find ways to negotiate these inflation rockets back to earth can be a tough proposition, especially when margins remain tight. Five industries have failing “F” grades in their margins, including the conveyor industry. But some do offer opportunity for haggling.

Consider the welding and soldering equipment industry. The cost of manufacturing continues to increase, but price inflation for the welding equipment that plant engineers buy has outpaced costs. As a result, this industry has enjoyed a margin increase of $1.59 for every $100 worth of final product sold. Two others boast even better margin gains, transformers (up $2.24) and cranes and hoists ($4.82).

Price/cost/demand roundup

Factory equipment & tools 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
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 6-digit NAICS (North American Industry Classification System) 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 (email: ebaatz@ice-alert.com)
Hand & edge tools (except saws) 1.32 1.87 stable F 2.70 2.99
Saw blades & handsaws -0.41 -0.44 stable F 3.28 3.48
Metal hardware 2.07 3.02 stable F 3.80 3.44
Mechanical power transmission equip. 3.49 4.57 stable C 12.80 12.04
Conveyors & conveying equipment 3.01 4.73 stable F 6.77 6.55
Cranes, hoists & monorail systems 1.73 3.76 stable B 3.35 3.99
Industrial trucks (forklifts) & stackers 1.70 2.31 stable D 2.78 3.02
Metal cutting machine tools 0.34 1.11 stable B 6.86 6.50
Cutting & machine tool accessories 0.63 0.87 stable D 8.64 7.99
Power-driven handtools 0.49 0.69 stable F 3.99 4.39
Welding & soldering equipment 2.60 4.32 rising C 5.89 5.78
Pumps & pumping equipment 2.63 2.41 stable B 5.03 4.92
Air & gas compressors 1.38 2.01 stable C 6.25 6.36
Speed changers, drives & gears 2.57 3.58 stable B 12.80 12.04
Power & specialty transformers 0.81 1.67 stable D 4.05 3.52
Motors & generators 0.97 1.74 stable D 6.39 6.06
Industrial process controls & equip. 2.06 1.99 stable A+ 13.46 12.76
Fluid registering & counting devices 2.72 2.28 stable C 2.89 2.96
Instruments for electrical testing 0.22 0.34 stable B 7.56 7.79