PURCHASING HOTLINE

Late-breaking news and analysis for purchasing/supply chain management professionals

By -- Purchasing, 6/1/2000

Don't expect much relief in most basic industrial commodity prices over the summer months.

Don't expect much relief in most basic industrial commodity prices over the summer months. Demand continues to show significant strength and pickups in European and Far Eastern economies appear likely to add inflationary thrust to prices over the next few months. Here's a sampling of what to expect in some of the key industrial commodity markets:

Steel. Demand is far above what had been expected and most mills are booked through the third quarter. Availability is tightening across practically all product categories. Leadtimes are out 15%-20% over last year and continue to extend. Early year price increases are, for the most part, sticking. Predictions, as uncertain as they are, call for steel prices to peak sometime after Labor Day.

Stainless steel. If the steel market is hot, then the stainless market is red hot. Buyers and traders generally characterize the stainless market as twice as active as carbon. Prices have risen several times in the past year, as have surcharges (mostly on nickel stainless). Demand and supply are so out of balance that few in the market are willing to predict a peak.

Aluminum. Demand continues to improve following a year of steady growth. Early year sales figures show a 15% gain over the same period last year. But demand and prices in the light metal come nowhere near matching ferrous stats. Prices are higher, but the predicted surge hasn't happened. World markets are still long with backlogs and mergers announced in late 99 have not begun to move.

Copper. The red metal continues to chalk up demand figures that continue to contradict predictions made in 1999. As a result price increases have managed to spire upward. General feeling is that prices may have peaked-even with consolidation. Industry analysts see a few months of price backing and filling.

Paper. Industry pushed through capacity cuts last year and now demand is rising and supply is limited. Asian market has been bubbling since mid-1999. Result: Most of the price hikes put through earlier in the year are holding.

Paper packaging. Most of the recently announced price increases seem to be sticking. That's because demand continues to exceed forecasts, while supply has been limited by industry consolidations and a dearth of offshore supplies. Linerboard and corrugated boxes are seeing the most activity.

Chemicals Energy factors continue to keep most prices at historic levels-buttressed by strong demand and limited offshore availability. Most chemical buyers expect demand to remain strong and prices to retain their high levels well into 2001.

Plastics. Crude oil prices call the tune here and so far the tune is "high prices." Demand is strong, crude is still expensive, and the likelihood is that buyers will continue to pay top dollar for plastic resins into next year.

Cotton. Watch out for hype here. Industrial textile demand is good, but last year brought with it a big cotton surplus. Right now dealers are trying to talk up the fact that this year's crop is likely to be poor and that sales are stronger than expected. Result: much talk, but little action before the turn of the year.

Wood. Early year predictions of slight price weakness in lumber and panel products are starting to be re-examined. In fact, a sizzling first quarter has led to some revisions of pricing estimates.

Look for new rule of the National Minority Supplier Development Council to open up access to investment capital to minority-owned businesses

Look for new rule of the National Minority Supplier Development Council to open up access to investment capital to minority-owned businesses. Under the rule minority-owned firms will be able to sell up to 70% of non-voting stock to lending institutions without losing certification.

Expect significant upward shift in freight rates over the next six months.

Expect significant upward shift in freight rates over the next six months. Rates and fuel surcharges will be especially prevalent in LTL trucking, ocean shipping and rail industry. Some highlights:

Rail rates in general will go up around 3%. Rates on more "captive" shippers will go up by 6%-8%.

Air cargo rates could see some modest reductions in fuel surcharges. Still, surcharges are expected to hover in the range of 10¢-15¢/kilogram.

Truck rates continue to hit by heavy fuel surcharges. Shippers can be expected to pay roughly 6% in fuel charges in addition to rate increases of around 5%.

Eastbound ocean shipping rates are poised to rise at least $400 per 40-ft. container. Bad news doesn't end there! Could be accompanied by a peak season shipping surcharge of $300, which would last from July 1 to Oct. 31. Fuel surcharge similar to that in the trucking industry could also be enacted.

Also, keep an eye on rail car availability this fall. Number of shipping execs are expressing concerns that shipping season will be rife with equipment and railcar shortages.

Be prepared for more bad news in business travel expenses.

Be prepared for more bad news in business travel expenses. Here are some particulars:

Airfares will rise about 10% (combination rate hikes and fuel surcharges).

Taxies are expected to raise rates an average of 10%.

Hotel rooms will be up by 4% in most cities, much more in New York and Chicago.

Rental cars, on the other hand, are not likely to hike rates-but there will be fewer of them for rent.

Meal prices will show only negligible changes.

Does your department have the systems in place that insures its cost-effective functioning?

Does your department have the systems in place that insures its cost-effective functioning? If you don't or don't know, it may be a good idea to get Purchasing Magazine's book entitled The Systems Purchasing Breakthrough. Authored by Jim Morgan, Editorial Director Emeritus of Purchasing Magazine, and Ernest L. Anderson, Jr., developer of the concept of "systems contracting" and longtime contributing editor to Purchasing, the new book gives insights into how to analyze the purchasing systems you now have in place and structure them into supply agreements in a logical step-by-step fashion. Practical advice is provided on analyzing systems, changing systems, selling systems to top management and suppliers, and negotiating and implementing systems agreements. For your copy, send $30 plus $2.50 for shipping and handling to Purchasing Magazine, P.O. Box 497, New Town Branch, Boston, Mass. 02456. For credit card orders, call 617-558-4348 (Amex, Visa and Mastercard accepted.) You can also visit our Bookstore on Purchasing's Web site, www.purchasing.com.

Be prepared to pay up to 7% more this year for office space.

Be prepared to pay up to 7% more this year for office space. It's bad, but better than last year when increases in some areas went up a whopping 10%. Space in many areas remains short. Toughest areas include Boston, New York, Atlanta, Orlando, Houston.

Take note of two new research studies produced by the Freedonia Group

Take note of two new research studies produced by the Freedonia Group -the Cleveland-based industrial market research firm:

-U.S. industrial water management chemicals demand is projected to rise 4.7% annually between now and 2004 to roughly $2.3 billion.

-Meanwhile, U.S. insulation demand for thermal and acoustical insulation is expected to rise by 1.5% between now and 2004. Market value: $6 billion.

Both research studies are available from the Freedonia Group. Phone: (440) 684-9600.

Want to be up-to-date on the latest in non-traditional purchasing?

Want to be up-to-date on the latest in non-traditional purchasing? Get Purchasing's newest book, Strategies for Non-Traditional Buying. In it you'll read how non-traditional thinking is changing purchasing and get tips on buying a wealth of non-traditional goods and services that are increasingly coming under purchasing's domain-energy, office supplies, computers, software, telecommunications, travel services and more. Also included are sections that detail the role of procurement cards and the Internet in today's state-of-the-art purchasing systems. For your copy, send $40.50, plus $2.50 for postage and handling (check or money order) to Purchasing Magazine, P.O. Box 497, New Town Branch, Boston, Mass. 02456. For credit card orders call (617) 558-4348 (Amex, Visa and MasterCard accepted). You can also visit our Bookstore on Purchasing's Web site, www.purchasing.com.

Pay special attention to shipments moving in the EU.

Pay special attention to shipments moving in the EU. Many of the shortages of trained drivers reported in the U.S. are also present on the Continent. European carriers are especially short of drivers with training needed to operate heavy-duty vehicles and refrigerated trucks.

Expect the trade deficit to continue growing well into next year

Expect the trade deficit to continue growing well into next year -even though U.S. exports continue to improve. Problem is that U.S. demand continues to soak up foreign goods.

Looking for freight bargains?

Looking for freight bargains? Best bets will be among air carriers specializing in heavy shipments, truckers specializing in heavy LTL loads, and the railroads.

Check out new thermoplastic resin developed by GE Plastics.

Check out new thermoplastic resin developed by GE Plastics. New polymer, dubbed W4 resin, was developed at GE's R & D center at Schenectady, N.Y. Key appeal, according to GE, is the resin's potential to eliminate the need to paint vehicle exteriors because of the resin's high gloss properties, its high gloss retention, its ultraviolet resistance, and its resistance to gasoline, chemicals and scratches.

Get ready for introduction of new "smart" packaging by International Paper and Motorola.

Get ready for introduction of new "smart" packaging by International Paper and Motorola. Packages feature use of tiny silicon chips embedded in the packaging that can be read and modified through a wireless interface. Chips make use of Motorola's radio frequency identification technology. Companies claim embedded chips are a major improvement over bar-code technology, which requires use of scanners. Smart packages emit radio signals that allow continuous tracking-from manufacturing, through distribution and retailing.

Keep an eye on air freight moving in Canada.

Keep an eye on air freight moving in Canada. Recent takeover of Canadian Airlines by Air Canada has apparently stirred up a small storm of complaints and charges of rate gouging on air freight.