If buyers can get what they need, they're paying for it
Tom Stundza -- Purchasing, 3/4/2004 2:00:00 AM
Business has been improving for more than half of the buyers surveyed monthly since last autumn, but they say activity could have been even stronger lately if sufficient amounts of raw materials had been available.
"Availability is an even bigger issue than price," says a manufacturing firm's purchasing manager in Kansas. "And prices are getting ridiculous."
PURCHASING magazine's monthly survey of buyers puts the February business activity index at 67.8 (where 50 separates expansion from contraction), making the four-month average of 67.4 the highest since the survey was revised in January 1996. The 90-day buying plans index of 81.2 in the February survey is the highest on record, which probably reflects that orders have strengthened for many products (see sidebar). Even the long-depressed aerospace parts market is starting to pulsate. However, the chemicals, plastic products and paper packaging markets continue to be described as unstable
Seventy-five percent of the metals buyers polled in February report higher prices compared to January. In fact, sales prices for such raw materials as steel, aluminum and copper are increasing drastically. So, manufacturers actually are backing off earlier forecasts of double-digit earnings growth in 2004, citing the rising cost and availability of steel, nonferrous metals and other raw materials.
Business opportunities are increasing for pressure vessels, "and we look to be busier than in the past two years," says a purchasing manager in Texas, "but there are concerns about material availability and increased cost of materials." The senior procurement manager for an Ohio-based supermarket chain says: "Steel drum manufacturers are demanding immediate price increases to offset skyrocketing steel and energy prices."
Most production-grade metals are somewhat short in supply, buyers say.
"We continue to have problems in getting castings," says a purchasing manager in Indiana. "A lot of this is primarily due to the fact that we have still seen more foundries close." And, with machinery manufacturing starting to perk up, buyers also are complaining about longer-than-expected leadtimes for clutches and couplings, fasteners and milled parts, hydraulic and pneumatic valves, springs, electrical products and variable speed motors and drives.
Outside metals, propylene chemicals and polypropylene resins are a supply problem, along with polyamide film and such chemicals as calcium chloride and methyl acetate.
Then there are supply issues with the occasional specialty item, as a materials manager in California reports: "We have a type of toilet paper holder we get from China, made of brass only. I placed a purchase order nine months ago and still have nothing, and I cannot find anyone else to produce this item."
Price is a real problem
The buyer surveys reflect recent sales price increases for such chemicals as ethylene, propylene and sulfuric acid, and such plastics as polyethylene and polyvinyl chloride (PVC). Energy prices have been rising with fuel oil, gasoline and natural gas cited most often. Various electronic components also are up in price. Among the metals with price gains are aluminum sheet and extrusions, copper mill products, brass mill products, nickel and cobalt.
Any type of metal is very difficult to source, buyers report. And the metal stamping companies are concerned about rising prices for aluminum, copper and, especially, steel. One buyer says business is very good. Still, he is "watching steel surcharges closely, figuring how to hold them off or pass them on to customers." Another buyer worries that while business is getting better, "exploding metal prices may reverse the trend."
Sheet steel supply is extremely tight, the buyers say. In fact, steel availability is as tight as it has been in 30 years. "Business conditions for our company have been on the steady rise since September of 2003, so we have been trying to man a three-shift operation," says the purchasing manager of a Pennsylvania manufacturing company. "We cannot achieve this goal, though, due to our metal suppliers' inability to provide an adequate supply of materials."
Buyers at many companies believe the cost environment must stabilize before they can provide precise guidance on market conditions. "We identified the rising price of steel as one of the challenges that we would face this fiscal year, says the purchasing manager at a Nebraska manufacturer of irrigation systems. "However, the speed and magnitude of recent steel cost increases are unprecedented, and the company hasn't been able to pass on increased costs quickly enough to maintain margins."
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