Margins continue to shrink in valve market

Increasing production costs continue to put extreme pressure on suppliers of operating materials and supplies. Luckily for the plant engineering budget, suppliers won't enjoy the big price hikes they want. Manufacturers of valves illustrate the situation. Over the last 12 months, the cost to manufacture one unit of industry output increased by 12.


Increasing production costs continue to put extreme pressure on suppliers of operating materials and supplies. Luckily for the plant engineering budget, suppliers won't enjoy the big price hikes they want.

Manufacturers of valves illustrate the situation. Over the last 12 months, the cost to manufacture one unit of industry output increased by 12.1% and 13%, respectively, for the industrial valves and fluid power valves industries. Higher costs for raw materials like basic steel mill shapes and ferrous foundry products, have accounted for much of the damage.

Meanwhile, over the 12-month period ending January 2005, average product prices for valves increased less than 2%. This cost/price escalation mismatch has resulted in F-minus margin grades.

In the industrial valves industry, margins sit now at their lowest point since December 1995 and are exerting significant inflationary pressure. To bring margins back in line with 5-year average levels would require a price increase of 4.8%. Restoring margins to year-ago levels would mean a 6% jump.

As for the fluid power valves industry, suppliers currently spend $57.30 to make $100 of market-valued output. Average spending over the last 60 months has been $52.99. To close the $4.31 gap would mean an 8.2% price hike, if costs were held constant.

In 2005 suppliers will work hard at making bottom-line repairs. Average tags for valves will gain less than 2.5% between 2004:Q4 and 2005:Q4. Though small, this increase will have a significant bottom-line impact. While tags will be increasing, per-unit manufacturing costs will be falling 2.7% for industrial valves and 3.4% for fluid power valves. In the fluid power valves industry, that cost drop combined with modest price hikes will boost margins $3.28 for each $100 of product sold.

Price/cost/demand roundup

Construction & maintenance supplies Average Product Prices (1) % Change 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:
Wood pallets2.402.83risingC1.161.78
Polishes & specialty cleaning preparations-0.09-0.05risingF1.261.96
Metal hardware0.661.14risingD1.732.23
Lubricating oils & greases3.844.10risingC1.912.54
Rubber & plastic hoses & belting2.232.12risingF5.095.54
Abrasives-coated products0.230.11risingB6.697.67
Steel wire drawing2.947.63stableD1.752.41
Copper rolling, drawing & extruding5.0113.48stableF7.058.92
Insulated wire & cable2.696.85risingF8.099.50
Heating equipment1.831.88stableF1.823.04
Fabricated metal plate work0.070.80stableF-9.1410.20
Bolts, nuts, screws, rivets & washers0.241.03stableF7.147.63
Industrial valves1.441.85risingF-3.684.74
Fluid power valves & hose fittings1.471.47risingF-3.684.74
Metal & plastic plumbing fixture fittings0.811.02risingF3.684.74
Metal cloth, fence & other wire products0.402.17stableF-3.334.04
Fabricated metal pipes & fittings1.925.45risingD1.873.29
Ball & roller bearings1.181.27stableD4.955.56

The Top Plant program honors outstanding manufacturing facilities in North America. View the 2015 Top Plant.
The Product of the Year program recognizes products newly released in the manufacturing industries.
Each year, a panel of Control Engineering and Plant Engineering editors and industry expert judges select the System Integrator of the Year Award winners in three categories.
Pipe fabrication and IIoT; 2017 Product of the Year finalists
The future of electrical safety; Four keys to RPM success; Picking the right weld fume option
A new approach to the Skills Gap; Community colleges may hold the key for manufacturing; 2017 Engineering Leaders Under 40
Control room technology innovation; Practical approaches to corrosion protection; Pipeline regulator revises quality programs
The cloud, mobility, and remote operations; SCADA and contextual mobility; Custom UPS empowering a secure pipeline
Infrastructure for natural gas expansion; Artificial lift methods; Disruptive technology and fugitive gas emissions
Power system design for high-performance buildings; mitigating arc flash hazards
VFDs improving motion control applications; Powering automation and IIoT wirelessly; Connecting the dots
Natural gas engines; New applications for fuel cells; Large engines become more efficient; Extending boiler life

Annual Salary Survey

Before the calendar turned, 2016 already had the makings of a pivotal year for manufacturing, and for the world.

There were the big events for the year, including the United States as Partner Country at Hannover Messe in April and the 2016 International Manufacturing Technology Show in Chicago in September. There's also the matter of the U.S. presidential elections in November, which promise to shape policy in manufacturing for years to come.

But the year started with global economic turmoil, as a slowdown in Chinese manufacturing triggered a worldwide stock hiccup that sent values plummeting. The continued plunge in world oil prices has resulted in a slowdown in exploration and, by extension, the manufacture of exploration equipment.

Read more: 2015 Salary Survey

Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
The One Voice for Manufacturing blog reports on federal public policy issues impacting the manufacturing sector. One Voice is a joint effort by the National Tooling and Machining...
The Society for Maintenance and Reliability Professionals an organization devoted...
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
The maintenance journey has been a long, slow trek for most manufacturers and has gone from preventive maintenance to predictive maintenance.
This digital report explains how plant engineers and subject matter experts (SME) need support for time series data and its many challenges.
This digital report will explore several aspects of how IIoT will transform manufacturing in the coming years.
Maintenance Manager; California Oils Corp.
Associate, Electrical Engineering; Wood Harbinger
Control Systems Engineer; Robert Bosch Corp.
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
click me