Margins stand at all-time low

Producers of operating materials and supplies are under increasing pressure to hike prices. The reason: covering the cost of manufacturing these supplies is becoming more and more difficult. Indeed, the cost of manufacturing in the PLANT ENGINEERING market basket of operating supplies grew at a fast 5.


Producers of operating materials and supplies are under increasing pressure to hike prices. The reason: covering the cost of manufacturing these supplies is becoming more and more difficult.

Indeed, the cost of manufacturing in the PLANT ENGINEERING market basket of operating supplies grew at a fast 5.1% pace in the 12-mo period ending April 2004. That compares to a 1.2% cost escalation rate in the 12 mo ending April 2003 and a 1.7% cost decline in 2002. Over the past eight years, manufacturing costs grew at an average annual rate of just 0.9%.

The average prices that this market basket of industries charged grew just 2.5% in the 12 mo ending April 2004. As a result of the cost/price mismatch, 10 industries now sport an F-minus margin grade, meaning manufacturing margins stand at an all-time low. Seven others registered an F grade, and the remaining two enjoyed an average C grade.

Hit hardest, the copper rolling and drawing industry saw its production costs soar 42.3% between April 2003 and April 2004. Luckily for the producers, if not so for plant engineers, copper rollers managed to hike their average product prices by 36.2% over the same time period, which meant margins fell only $3.66 for every $100 of product sold.

Not so lucky, makers of wood pallets faced a 24.4% cost jump, but only managed to increase prices for their products by 3.6%. The distressing result: industry margins dropped by $13.73 for every $100 of product sold

Plant engineers who are looking for a calm port in this inflationary storm may want to focus on their purchases of rubber and plastic hose and belting. The industry that makes this product hiked average prices by only 1.7%, while costs of production increased an even milder 1.6%.

Price/cost/demand roundup

Operating Materials & Supplies Average Product Prices % Change During 12 Months Ending Direct Manufacturing Costa and Margins Grade Growth in U.S. End Markets % Change During 12 Months Ending
Industry Jan 04 Apr 04 Costs are Grade Jan 04 Apr 04
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 pallets-0.220.94risingF--1.00-0.64
Polishes & specialty cleaning preparations-0.48-0.33risingF--0.92-0.51
Surface active agents & related agents-0.94-0.39risingF0.450.46
Lubricating oils & greases1.051.81risingC-0.80-0.19
Rubber & plastic hoses & belting1.151.93stableC0.171.63
Abrasives-coated products0.160.56risingF2.053.83
Steel wire drawing0.960.91rising fastF--1.70-0.94
Copper rolling, drawing & extruding-2.01-1.60risingF-0.552.29
Insulated wire & cable-3.08-1.80risingF3.055.47
Heating equipment1.021.29risingF--1.81-0.64
Fabricated metal plate work1.120.76risingF-6.318.26
Bolts, nuts, screws, rivets & washers0.390.20risingF2.654.51
Industrial valves1.331.43risingF--1.410.28
Fluid power valves & hose fittings1.311.41risingF--1.410.28
Metal & plastic plumbing fixture fittings0.780.85risingF--1.410.28
Metal cloth, fence & other wire products0.670.50risingF-1.06-0.17
Fabricated metal pipes & fittings1.651.79risingF--2.60-1.18
Ball & roller bearings1.171.22risingF--0.880.80

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