Buyers harbor some hopes for the months ahead
By Staff -- Purchasing, 2/11/1999 2:00:00 AM
Buyers are somewhat optimistic this month, and several regions report downward price trends for several major commodities. According to data from Purchasing's new monthly Grassroots Business Survey, the MidAtlantic and Northeast regions appear to be seeing the weakest commodity pricing overall.
Nearly 48% of buyers nationwide say business is the same or increasing compared to last month. More than half (54%) say business is still the same or increasing compared to last year. These figures alone are not much to shout about, but nationwide almost half of buyers surveyed are optimistic about business for the coming six months. Only 17% say they are pessimistic about business conditions ahead.
Underpinning the optimism, Purchasing's survey finds both rising orders and emphasis on new products and process improvements. "Our orders are increasing, and our company is improving its processes internally," says a buyer in Illinois. Several buyers point to imminent new products for which they have high hopes. "[New products] will give us more of an opportunity to expand our business," says a Minnesota buyer. Buyer optimism this month is strongest in the Northeast region and in construction and food processing industries, according to the survey.
Still, not all buyers share the euphoria. "It all depends on Asia, Clinton, and the economy," says one wary buyer in Illinois. "We can't export product because of a lack of demand in Asia," says a buyer in Missouri. "There will be gains in the domestic market, but international sales will be weak," says a buyer on the West Coast. Particular industries for which buyers express concern include aerospace and oil and gas refining. Pessimism is greatest in the West/Pacific Northwest.
Supply conditions
Data on inventories shows a large number of buyers with bloated material stockrooms and warehouses. Purchasing's new grassroots survey suggests that the inventory buildup of second-half 1998 has reached its limits. The diffusion index tracking desired materials inventory-to-sales ratio comes in at a disturbingly high 68.
Inventories are less out of hand at work-in-progress (WIP) and finished-goods levels. The diffusion index tracking desired WIP inventory-to-sales registers at 54 this month, while the index tracking desired finished-goods inventory to sales is pegged at just under 53. Yet both still remain above 50, suggesting that producers may need to slow production a bit in coming months.
Only 25% of buyers surveyed say they've faced any type of supply shortage in the past month, down five points from last month's figures. Sixty-six percent report no problems with supply. Regionally, the MidAtlantic states seem to be facing the most supply glitches (36% of buyers cite recent problems), followed closely by the South (31%). Supply is easiest in the Northeast, with only 22% reporting any materials in short supply.
Prices/leadtimes
Prices are pushing upward for some commodities, according to data from Purchasing's new monthly grassroots business survey. Reports from buyers indicate that industrial chemicals (with a diffusion index of 56) and industrial machinery (also at 56) are experiencing the most upward pressure. Steel is experiencing the least price pressure, according to buyers. Industrial machinery and semiconductors top the high-leadtimes list. By major commodity segment, here are some highlights:
* Pulp. National trends show price erosion but level leadtimes. The diffusion index tracking price trends comes in at 38, with few buyers reporting price increases. The index tracking leadtime trends stands at 50--a fairly stable result. By region, pulp prices have done nothing but fall in the MidAtlantic states; index for the Northeast comes in at just 17. In the South, by contrast, pulp prices appear to be rising as more buyers report rising prices than report declines (pushing the regional price index to 63).
* Paper. National price trend index stands at just 33. Paper tags appear weakest in the MidAtlantic, where zero buyers report rising prices this month. Deflation also prevails in the Northeast, where the monthly price index averages only 19. Paper prices look more stable in the West and Pacific Northwest regions. Producers appear to have taken a bite out of production, as the national index tracking paper leadtime trends rises to 56 this month.
* Corrugated. The national index tracking corrugated product price trends registers at only 31 this month. Buyers in the South and Midwest benefit the most, with index scores of 17 and 24, respectively. Nationally, the leadtimes index comes in at a stable 49, as stretching in the West/PNW offsets reported declining trends in other regions.
* Industrial chemicals. Nationally, buyers detect a slight updraft in pricing as the price diffusion index rises to 56 this month. Buyers in the West/PNW and Southern regions appear to have lost the most ground with suppliers (latest indexes stand at 60 and 55, respectively). Best price conditions for chemicals remain in the Northeast. Behind the trend reversal is a rise in leadtimes. Significant numbers of buyers report longer leads in both the Northeast and MidAtlantic regions (latest indexes stand at 70 and 67).
* Plastic resins. Lower prices for plastic resins have settled on most regions. This month, the diffusion index tracking price trends nationally registers at a deflation-signaling 43. Regional indicators show weakest pricing in the MidAtlantic, where no buyers report rising prices, and the Midwest, which yields an index value of just 36.
* Refined petroleum products. The national index tracking refined petroleum product price trends registers at 40 this month. The Northeast and MidAtlantic regions benefit most, with no buyers reporting rising tags. Nationally, the leadtime index comes in at 48. Leadtimes for refined petroleum products are stable in most parts of the country, shrinking only in the Midwest.
* Steel. National trends show price and leadtime declines for steel across the country. The price trend index comes in at just 26, leadtimes at 39. The Midwest (21) and West/Pacific Northwest (20) are seeing the weakest steel prices. Strongest price indexes are in the Northeast and MidAtlantic regions, both at 25--and that's not very strong at all. Highest leadtime index is noted in the West/PNW (approaching stability at 45).
* Aluminum. At 44, the national price indicator shows "weakish" aluminum prices across the country. Prices are weakest in the South and strongest in the Northeast. Leadtimes are trending slightly higher, with a national index of 57.
* Copper & brass. The national index tracking copper and brass price trends registers at 45 this month, with low prices most prevalent in the Northeast (17). The South and Midwest record indexes at 33. Nationally, leadtimes are basically flat to rising (53), but are trending much higher in the West/PNW, which shows an index value of 75--the highest regional leadtime value recorded in this month's survey.
* Semiconductors. Looks like the status quo for semiconductor price tags, at least on a national basis. The semiconductor price trend index is at 50. Regionally, it's a different story, with prices trending down sharply in the Northeast and MidAtlantic regions. Leadtimes are extending in every region, with worst conditions in the West/Pacific Northwest (an index rating of 60).
* Computers. National indicators show computer tags weakening across the country. Prices are weakest in the South (19) and West/Pacific Northwest (22). At their strongest, however, our regional price indexes for computers top out at a mere 25 (in MidAtlantic and Midwest regions). Leadtimes are flat to slightly weakening, with greatest availability in the Northeast, according to the survey.
* Industrial machinery. National trends show stable to rising prices with lengthening leadtimes. The diffusion index tracking price trends comes in at 55. Index tracking leadtime trends hits 61--indicating that leadtimes are starting to stretch out again. By region, industrial machinery prices are strongest in the Midwest (59) and West/PNW (63). Worst leadtime stretching is in the South (69).
* MRO items. The national indicators show slightly increasing prices and leadtimes on MRO items in most parts of the country. Only the Northeast is seeing weaker tags on average (39). MRO prices are trending up more in the MidAtlantic (67) than in any other region. Leadtimes are also extending slightly, with the national index showing 55. Toughest leadtimes for MRO are in the Midwest.
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