Wood-related industries chop prices

At last, some construction costs are coming down. Running full throttle, as we wrote three months ago, higher prices have flattened many a factory repair and maintenance budget. This month, finally, we see five industries in the PLANT ENGINEERING construction index that are reporting declines in manufacturing costs.


At last, some construction costs are coming down. Running full throttle, as we wrote three months ago, higher prices have flattened many a factory repair and maintenance budget. This month, finally, we see five industries in the PLANT ENGINEERING construction index that are reporting declines in manufacturing costs.

Unfortunately, these cost cuts were limited to wood and wood-related industries only. Looking at all 22 industries in our construction index, the overall numbers seem dismal. Eleven industries sport F or D grades in our analysis of industry margins. That means suppliers in those industries are well justified in requesting more price hikes.

Even industries flush with profits have market dynamics in their favor. Demand trends tend to favor suppliers, not buyers. End-market demand is growing in each and every industry in our index. Not only is demand growing, but the speed of that growth is increasing too.

That means suppliers have the market behind any aggressive pricing actions. Indeed, 20 out of 22 industries in our construction index increased their average product prices over the past 12 months. And 14 of the 20 pushed their price hikes up even higher in November than they did three months earlier.

Thanks to falling costs, cost/price escalation analysis heavily favors buyers of wood products. To bring current margins back in line with long-run norms, we calculate that prices in the softwood plywood, other millwork, and particleboard industries would have to be cut by 13%, 6.6%, and 1.1%, respectively. Persuading your supplier to share some of its cost savings is another story entirely. Until Alan Greenspan's anti-inflation policies can make headway against Iraq war-induced shortages, that task won't be easy.

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).
Sawmill products1.424.78fallingC2.923.72
Wood windows & doors0.510.76fallingC0.652.01
Other millwork (excl. windows & doors)1.013.62fallingA+0.982.41
Hardwood plywood-2.58-2.32fallingB1.932.99
Softwood plywood17.1430.66fallingB1.932.99
Shelving & fixtures0.251.22stableB1.392.07
Flat glass0.500.17risingF6.968.06
Sewer pipe & other structural clay prod.3.832.63risingF-0.491.71
Gypsum products1.322.63risingB0.502.18
Fiberglass & other mineral wool0.230.22risingB1.583.18
Iron & steel pipes & tubes6.346.79risingA5.136.88
Metal & plastic plumbing fixture fittings0.420.53risingF-3.664.37
Metal windows & doors0.840.86stableF-3.114.42
Sheet metal work1.151.20risingF0.642.29
HVAC equipment1.091.47stableF6.437.02
Current-carrying wiring devices0.220.07stableF1.962.63
Noncurrent-carrying wiring devices-0.47-0.55risingF-5.916.30
Nonresidential electric lighting fixtures-0.541.81risingB5.916.30
Automatic environmental controls1.961.43risingD0.031.32

Top Plant
The Top Plant program honors outstanding manufacturing facilities in North America. View the 2017 Top Plant.
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.
February 2018
2017 Product of the Year winners, retrofitting a press, IMTS and Hannover Messe preview, natural refrigerants, testing steam traps
March 2018
SCCR, 2018 Maintenance study, and VFDs in a washdown environment.
Jan/Feb 2018
Welding ergonomics, 2017 Salary Survey, and surge protection
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
December 2017
Product of the Year winners, Pattern recognition, Engineering analytics, Revitalize older pump installations
April 2018
Implementing a DCS, stepper motors, intelligent motion control, remote monitoring of irrigation systems
February 2018
Setting internal automation standards
December 2017
PID controllers, Solar-powered SCADA, Using 80 GHz radar sensors

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

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