Get steely about prices
By Staff -- Purchasing, 11/2/2000
Steel pipe and tube prices are rising and the pace of inflation is picking up. According to price surveys from the BLS, average prices in the steel pipe and tube (SIC 3317) industry increased 2.9% in the 12-month period ending September 2000, compared to a 4.5% price decline in the 12-month period ending September 1999. Between September 1999 and September 2000, prices actually jumped 5.1%. Stainless pipe and tube led the way with a 13.2% year-over-year price increase followed by an 8.8% gain in carbon steel pipe and oil country tubular products.
Strong demand is giving suppliers most of their negotiating strength. A vibrant U.S. economy, particularly healthy new construction and maintenance repair markets and solid motor vehicle output, provides pipe producers with muscle to make price increases stick. But buyers with the clout to buck such strong demand fundamentals have some help on their side. Washington-based Thinking Cap Solutions notes that in September 2000, for every $100 of steel pipe product sold, producers spent an estimated $67.53 on direct manufacturing costs-down from $70 at the start of 1998 and $74 at the start of 1995. So even accounting for the effects of rises in heat and power costs, industry margins are doing just fine. Steely buyers who can sidestep demand and tap into cost arguments may see some negotiation wins.
Cost/price analysis Sep-99 May-00 Jun-00 Jul-00 Aug-00 Sep-00 Average product price index (annual % chg) -4.47 -0.53 0.40 1.35 2.17 2.94 Industry direct manufacturing costs (annual % chg) -5.45 -0.40 0.48 1.38 2.19 2.89 Direct manufacturing costs per $100 of product $67.98 $67.78 $67.75 $67.93 $67.52 $67.53
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Index, (1991=100) % chg Manufacturing costs Weight* Sep-99 Aug-00 Sep-00 08/00-09/00 09/99-09/00 Industry direct manufacturing costs 1.000 101.7 105.8 106.1 0.32 4.41 Direct materials-delivered 0.877 99.2 103.9 104.1 0.25 4.99 Freight costs 0.043 119.4 124.5 125.3 0.65 4.94 Direct materials-undelivered 0.834 98.1 102.8 103.0 0.23 4.99 Imported direct materials 0.054 96.7 105.9 104.5 -1.39 7.99 Domestic direct materials 0.780 98.2 102.6 102.9 0.34 4.79 Direct labor 0.123 119.4 119.7 120.6 0.72 1.00 Key materials Blast furnace and steel mill products
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93.1 96.4 95.9 -0.48 3.08 Industrial inorganic and organic chemicals
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109.0 119.4 122.7 2.68 12.51 Misc. chemical preparations
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112.1 112.8 112.8 0.00 0.60 Screw machine products
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106.9 107.4 107.5 0.08 0.56 |
* All weights represent a given category's contribution to total direct manufacturing costs. Prepared by: Thinking Cap Solutions Inc., a company specializing in industry cost-escalation analysis for purchasing applications. For more information, contact Elizabeth Baatz, Thinking Cap Solutions Inc. (360) 452-6159, or FAX (360) 457-2913 or E-mail ebaatz@ice-alert.com.
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