Construction prices soar

Plant managers who have been overseeing construction repairs have probably noticed that it has been tough to hold their projects on budget. In the 12-mo period ending February 2000, average prices for gypsum products soared 18.

05/01/2000


Plant managers who have been overseeing construction repairs have probably noticed that it has been tough to hold their projects on budget. In the 12-mo period ending February 2000, average prices for gypsum products soared 18.3%, softwood plywood prices surged 14.6%, and average tags for mineral wool products jumped 8.5%. Excluding plywood, most of these price hikes were completely lacking any underlying justification from higher costs. In other words, plant managers paid inflated prices while suppliers enjoyed stellar margin gains.

Although this practice is widespread among industries that supply plant construction materials and maintenance equipment, some supplier industries have serious profitability problems. These are industries that can easily justify price hikes. For example, consider the flat glass (SIC 3211) industry. In January 2000, producers increased tags by 3.7%. About a third of this price hike went toward offsetting a 1.2% increase in manufacturing costs. The rest went to improving profits. Nonetheless, the flat glass saw its inflation-adjusted margins remain $3.69 below their 5-yr average level. With margins so far below average, this industry gets a margin grade of "F."

Price/cost/demand roundup

IndustrySICAverage Product Prices1Change, %, During 12-Mo Ending...Nov 99Feb 00Direct Mfg. CostsGradeGrowth in U.S. End Markets3Change, %, During 12-Mo Ending... Nov 99Feb 00

General sawmills and planing mills

2421

2.56

5.56

Stable

C

3.83

3.16

Millwork

2431

1.81

2.07

Stable

D

5.30

4.78

Hardwood veneer and plywood

2435

0.05

1.06

Stable

B

3.95

3.29

Softwood veneer and plywood

2436

18.69

14.58

Stable

D

3.95

3.29

Metal partitions and fixtures

2542

1.09

0.88

Rising

B

4.80

5.00

Paints and allied products

2851

1.64

1.43

Rising

B

6.91

6.36

Flat glass

3211

-3.95

-2.14

Stable

F

18.40

19.36

Other structural clay products

3259

1.59

1.42

Stable

F

5.46

5.05

Gypsum products

3275

15.81

18.29

Stable

A+

4.13

2.94

Mineral wool

3296

10.36

8.51

Stable

B

4.90

4.23

Steel pipe and tubes

3317

-4.75

-3.35

Rising

A

2.41

3.69

Plumbing fittings and brass goods

3432

0.87

1.62

Stable

B

5.14

4.65

Metal doors, sash, and trim

3442

0.46

0.63

Rising

C

5.06

4.46

Sheet metal work

3444

0.31

0.05

Rising

C

17.57

18.61

Refrigeration and heating equipment

3585

0.90

0.30

Rising

C

8.80

7.49

Current-carrying wiring devices

3643

-0.06

0.13

Stable

D

19.52

19.79

Noncurrent-carrying wiring devices

3644

-2.73

-1.83

Stable

C

19.52

19.79

Commercial lighting fixtures

3646

-0.17

-0.39

Stable

F

6.75

6.57

Environmental controls

3822

0.29

0.27

Stable

B

5.66

4.88


1Average 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.

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.

3Growth 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: thinkcap@olypen.com).





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