Sellers of operating materials and supplies hit rough patch

If the folks who sell you operating materials and supplies say that manufacturers are having a tough time making a buck, you better believe it. In October 2003, five industries registered record-low levels of margins. A year ago, only one, bolts, nuts, rivets and washers, sported an F-minus margin grade.

01/10/2004


If the folks who sell you operating materials and supplies say that manufacturers are having a tough time making a buck, you better believe it. In October 2003, five industries registered record-low levels of margins. A year ago, only one, bolts, nuts, rivets and washers, sported an F-minus margin grade. Topping that off, five industries saw their margin grades fall to F and two to D in October 2003.

The reason for these money-making woes has much to do with rising costs and general difficulties in hiking prices. The PLANT ENGINEERING operating materials and supplies price index increased a meager 0.7% in the 12-month period ending October 2003. Over the same time period and for the same market basket of products, our manufacturing cost index, up 3.2%, grew nearly five times faster than prices.

That upturn in costs explains why, despite generally weakened markets, 80% of the industries that make operating materials were able to push through at least some modest improvements in pricing. In fact, that meager 0.7% average price hike for all industries contrasts sharply with the 0.7% average price decline we saw in the 12-month period ending October 2002.

Nonetheless, some not sporting F grades have managed to transform higher tags into year-to-date margin improvements. Case in point: the plumbing valves and pipe fittings (SIC 3494) industry has increased its average product prices at nearly twice the rate of manufacturing costs, thereby generating a significant bottom-line windfall. Margins gained 71 cents for every $100 worth of product sold in the first three quarters of 2003. Even with an average C grade for margins, buyers of plumbing valves and fittings have a good opportunity to push for price cuts. Thinking Cap Solutions estimates a 0.6% to 1.4% price decline is possible without dropping margins into a danger zone.

Price/cost/demand roundup

Average Product Prices1Change, %, During 12-Mo Ending... Direct Mfg. Costs2and Margins Grade Growth in U.S. End Markets3Change, %, During 12-Mo Ending...
Industry SIC July 03 Oct 03 Costs are... Grade July 03 Oct 03
NC means data could not be computed.
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 Pallets and Skids24480.481.66fallingF-0.48-0.69
Polishes and Sanitation Goods28420.020.42stableF0.370.07
Surface Active Agents2843-0.260.56stableD-0.02-0.62
Adhesives and Sealants28910.040.44stableD1.500.81
Lubricating Oils and Greases29921.472.48stableA0.530.35
Rubber and Plastics Hose and Belting30521.662.04stableC0.660.17
Abrasive Products32910.450.49stableF-4.915.16
Steel Wire and Related Products33151.551.93risingF-1.15-0.76
Copper Rolling and Drawing3351-2.30-0.01risingF-0.871.82
Nonferrous Wire Drawing and Insulating3357-2.24-0.81risingF8.889.60
Heating Equipment, except Electric34331.091.36stableC-1.08-0.88
Fabricated Plate Work, Boiler Shops34430.950.62stableF--2.19-1.58
Bolts, Nuts, Rivets and Washers34520.170.17stableF-8.578.87
Industrial Valves34911.401.40stableC-1.84-1.59
Fluid Power Valves and Hose Fittings34921.201.27stableC-1.84-1.59
Other Valves and Pipe Fittings34941.642.32stableC-1.84-1.59
Miscellaneous Fabricated Wire Products3496-0.24-0.18stableF-0.04-0.19
Fabricated Pipe and Fittings34980.831.02stableF--1.84-1.59
Ball and Roller Bearings35621.071.04stableF-0.21-0.42





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