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.

04/01/2005


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: ebaatz@ice-alert.com).
Wood pallets2.402.83risingC1.161.78
Polishes & specialty cleaning preparations-0.09-0.05risingF1.261.96
Metal hardware0.661.14risingD1.732.23
Adhesives1.281.60risingF2.082.79
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





Top Plant
The Top Plant program honors outstanding manufacturing facilities in North America.
Product of the Year
The Product of the Year program recognizes products newly released in the manufacturing industries.
System Integrator of the Year
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.
June 2018
2018 Lubrication Guide, Motor and maintenance management, Control system migration
May 2018
Electrical standards, robots and Lean manufacturing, and how an aluminum packaging plant is helping community growth.
April 2018
2017 Product of the Year winners, retrofitting a press, IMTS and Hannover Messe preview, natural refrigerants, testing steam traps
June 2018
Machine learning, produced water benefits, programming cavity pumps
April 2018
ROVs, rigs, and the real time; wellsite valve manifolds; AI on a chip; analytics use for pipelines
February 2018
Focus on power systems, process safety, electrical and power systems, edge computing in the oil & gas industry
Spring 2018
Burners for heat-treating furnaces, CHP, dryers, gas humidification, and more
April 2018
Implementing a DCS, stepper motors, intelligent motion control, remote monitoring of irrigation systems
February 2018
Setting internal automation standards

Annual Salary Survey

After two years of economic concerns, manufacturing leaders once again have homed in on the single biggest issue facing their operations:

It's the workers—or more specifically, the lack of workers.

The 2017 Plant Engineering Salary Survey looks at not just what plant managers make, but what they think. As they look across their plants today, plant managers say they don’t have the operational depth to take on the new technologies and new challenges of global manufacturing.

Read more: 2017 Salary Survey

The Maintenance and Reliability Coach's blog
Maintenance and reliability tips and best practices from the maintenance and reliability coaches at Allied Reliability Group.
One Voice for Manufacturing
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 Maintenance and Reliability Professionals Blog
The Society for Maintenance and Reliability Professionals an organization devoted...
Machine Safety
Join this ongoing discussion of machine guarding topics, including solutions assessments, regulatory compliance, gap analysis...
Research Analyst Blog
IMS Research, recently acquired by IHS Inc., is a leading independent supplier of market research and consultancy to the global electronics industry.
Marshall on Maintenance
Maintenance is not optional in manufacturing. It’s a profit center, driving productivity and uptime while reducing overall repair costs.
Lachance on CMMS
The Lachance on CMMS blog is about current maintenance topics. Blogger Paul Lachance is president and chief technology officer for Smartware Group.
Electrical Safety Update
This digital report explains how plant engineers need to take greater care when it comes to electrical safety incidents on the plant floor.
Maintenance & Safety
The maintenance journey has been a long, slow trek for most manufacturers and has gone from preventive maintenance to predictive maintenance.
IIoT: Machines, Equipment, & Asset Management
Articles in this digital report highlight technologies that enable Industrial Internet of Things, IIoT-related products and strategies.
Randy Steele
Maintenance Manager; California Oils Corp.
Matthew J. Woo, PE, RCDD, LEED AP BD+C
Associate, Electrical Engineering; Wood Harbinger
Randy Oliver
Control Systems Engineer; Robert Bosch Corp.
Data Centers: Impacts of Climate and Cooling Technology
This course focuses on climate analysis, appropriateness of cooling system selection, and combining cooling systems.
Safety First: Arc Flash 101
This course will help identify and reveal electrical hazards and identify the solutions to implementing and maintaining a safe work environment.
Critical Power: Hospital Electrical Systems
This course explains how maintaining power and communication systems through emergency power-generation systems is critical.
click me