Materials demand seems to be surging, but cool heads prevail
By Staff -- Purchasing, 4/9/1998
It appears that first-half 1998 will be characterized by unexpectedly robust demand and virtually dormant pricing. At least that's how we read Purchasing's latest industry-specific buying plans and price expectations indicators. For most of the categories tracked, demand appears to have gained strength in the early months of 1998. Still, supply glitches number very few. And after rising for much of 1997, most of Purchasing's Industry Supplier Performance Curves (tracking the rates of change for average industry leadtimes) have actually reversed direction, suggesting a general loosening of supply conditions. Here are the details by major industry grouping:Steel
Demand indicators paint a surprisingly strong picture. Current buying index has been plotting upward since mid- to late-1995. At present, the index stands roughly midway between its 1994 high and its 1995 low point. The future buying index (three months out) suggests the trend is likely to persist, even strengthen somewhat. Latest index reading on three-month buying plans lands in the low 60% range, on par with its level through much of 1994 and a significant (upward) departure from levels witnessed in 1997.
Such a trend might be worrisome but for several factors: U.S. steel leadtimes are actually shrinking on average. Plus, Purchasing's index tracking buyers' pricing expectations is running negative--almost on par with its last low point in 1995. Buyers anticipate high imports this year plus plenty of new tonnage from the mini-mills. Upshot: Big mills might talk bigger prices in 1998, but these moves will be read as pure ploys to prevent price attrition.
Nonferrous metals
Purchasing's nonferrous demand indicators are showing surprising strength in first-half 1998. Possible explanation: Home builders are now positing that the 1998 market could match 1997 and this is boosting demand for copper and, to a lesser extent, aluminum fabrications. Other big end markets, such as autos, are also demonstrating surprising buoyancy.
Despite booming demand, however, producers don't seem to be having any luck on the price front. Word is that nonferrous fabricators are trying like heck to push through demand-based in-creases, but they're running into big trouble when buyers ask them to justify hikes on the basis of cost. Problem is that cathode and ingot prices (LME) are weaker than weak, due mostly to the Asian flu. Purchasing's index tracking price expectations for nonferrous metals stands in the low 40s, suggesting that a majority of buyers expect falling prices in the months ahead.
Fabricated metals
The index that tracks current demand for fabrications has been moving upward since the outset of 1996. At present, the index stands about midway between its low point in 1996 and its last peak back in 1994. Index that tracks future buying plans (three months out) has registered sharp jumps in recent months. Latest reading posts at 95% of the prior peak (in 1994).
Still, this miniature demand surge has not translated into price panic. Index that tracks three-month price expectations continues to bump along in the low- to mid-50s as producers simply can't justify increases on basis of cost. Anxiety over apparent capacity constraints appears to have faded as machine-tool sales data suggest the nation's job shops have been very busy adding new equipment. Still, buyers are warned that there may be little room left for leadtime improvement if demand continues to boom. Also, this industry is one of the most likely to suffer upward pressure on labor costs.
Mechanical/electrical
Purchasing's current buying indicator shows a distinct strengthening trend, but its value remains very close to neutral, suggesting that demand is growing at a very slow rate. (It's probably a safe bet that few distribution sales reps are meeting their ambitious sales growth goals.) Second quarter may present some opportunities, however. Latest reading finds the future buying index at 94% of its last peak.
This surge in forward buying plans could be an anomaly as caution in the fourth quarter of last year may have left some firms short on MRO supplies in first-quarter 1998. But it could also mean that manufacturing capacity is beginning to strain a little under so much sustained demand for new goods. At any rate, this surge in demand for MRO goods isn't likely to last long enough to create any pricing confidence among sellers.
Paper
Current buying indicator has crashed since summer of 1997 as producers have continued to push their pricing agendas with great success. Nonetheless, it looks like buyers will return grudgingly to the market next quarter. Conservative buying in fourth-quarter 1997 seems to have left users with too little stock. Purchasing's index tracking future buying plans rose precipitously in quarter one, hitting 60%. And buyers don't have a weak commodity futures market to help quell rising price pressures. The index that tracks three-month price expectations edged down a bit in the first quarter but remains in positive territory. Upshot: Unlike processors of metals and chemicals, this industry has been very conservative in developing new capacity over the past few years. If buyers come back to market in force, it's likely that producers will try some new increases.
Packaging
Current buying surged in third-quarter 1997 then backed off in the fourth. Still, the index tracking future buying plans continues to track upward, suggesting that fourth-quarter 1997 was merely a breather in demand. The index tracking three-month pricing expectations stands at 66% of its 1994 peak. This index dipped slightly in quarter one, but viewed against the demand data, it's difficult to believe that the tide will turn in favor of buyers. Still, buyers aren't likely to panic as they did in 1995-1996. Latest data show that packaging leadtimes are, on average, improving at a modest rate.
Chemicals and resins
Current buying trend is essentially flat in the slightly negative range. The future buying index jumped in first-quarter 1998, following the general trend for process industries. Still, Purchasing's data suggest that buyers expect virtually no industry price changes over the next several months.
Buying plans/price expactations
(qrtly. avg., % of buyers planning/expecting increase*)
1997 Q2 Q3 Q4 1998 Q1
3-month buying plans
Steel 57.8 49.7 51.2 61.5
Nonferrous 54.0 49.7 49.8 57.8
Fabricated metals 55.7 56.2 51.0 57.7
Mechanical/electrical 51.8 55.3 49.7 57.0
Materials handling 41.7 40.3 42.0 40.3
Paper 50.8 53.0 48.3 57.7
Plastic & rubber 52.2 52.5 48.7 59.0
Packaging 56.2 56.5 52.0 56.7
Office 44.2 48.3 42.2 47.2
Glass & clay 59.3 56.7 51.3 53.2
Precious metals 39.0 40.3 56.0 62.2
Chemicals/resins 53.2 53.3 50.3 56.7
3-month price expectations
Steel 56.5 51.0 48.0 45.3
Nonferrous 59.5 54.3 50.0 42.0
Fabricated metals 54.0 51.0 53.5 53.5
Mechanical/electrical 52.2 49.7 53.2 52.2
Materials handling 52.8 52.0 52.7 55.5
Paper 47.8 54.2 59.5 54.8
Plastic & rubber 52.0 51.2 49.3 51.2
Packaging 39.7 50.8 65.8 64.8
Office 45.3 51.3 43.5 47.3
Glass & clay 55.3 49.3 52.2 49.0
Precious metals 40.8 44.5 55.7 40.0
Chemicals/resins 52.8 53.7 50.5 49.7
* Diffusion index (percent) represents one half of buyers planning/expecting same level plus all buyers planning/expecting increase. Value above 50% indicates trend increase; below 50% indicates trend decline.
SOURCE: PURCHASING SURVEY
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
Now Playing:
