Factors Affecting Product Cost
Staff -- Purchasing, 8/17/2004
- Semiconductor prices started to improve late last year as demand finally caught up with bloated inventories and excess manufacturing capacity, says Jim Feldhan, president of Semico Research Corp. in Phoenix. "For the remainder of 2004, we expect to see a trend of increasing prices." But he also thinks manufacturers are being careful not to gouge. "The stock market has been nervous about how long this [semiconductor demand] recovery will last," he says. "So there's been pressure to keep capacity high and not boost prices too much."
- Office white paper prices have rebounded by $60/ton off the cyclical low of $710 posted in January 2004 and need to rise only another $20 to reclaim the cyclical peak of $790 posted in January 2003. Since uncoated free sheet markets have strengthened considerably, "expect the fourth quarter average for cutsize paper to be $790," says analyst Stephen Atkinson of BMO Nesbitt Burns.
- Compania Siderúrgica de Tubarão, the Brazilian steelmaker known as CST, is negotiating deals for fourth quarter slab contracts at prices of $460-$470/metric ton FOB for the U.S. market, according to sales director Benjamin Baptista.
- Steel plate (in coils) from mills costs $330-$340/ton more than in January. Cut plate from service centers is $360 higher. However, Bear Stearns analyst Anthony Rizzuto Jr. says demand/supply fundamentals have been healthy, but not robust, and suggests that early-summer transaction tags aren't sustainable. Consensus forecast: A slippage of $100-$150/ton by the fourth quarter.
- Palladium averaged $253/oz in the first half, and BMO Nesbitt Burns analyst David Mallalieu predicts a full-year price average of $273. In 2003, the precious metal used extensively in autocatalysts averaged at $198 but annualized demand at midyear had risen by almost 6%.
- Retail diesel prices have averaged $1.73/gal over the past three months, the Energy Department says. In the previous 16 months, diesel averaged $1.54. But now, economic growth is pushing fuel prices higher and boosting costs for rail, airline and trucking firms. "This is going to cost us a few hundred million more than we were hoping to spend,'' says Jeff Glasgow, senior manager of petroleum products at Union Pacific Corp., the largest U.S. railroad and the second-biggest user of diesel after the U.S. Navy.
| Commodity Category | Period | Up | Down | Same | Diffusion Index |
| Steel | July | 67% | 6% | 27% | 80.7 |
| Fabricated metals | July | 61% | 5% | 34% | 77.8 |
| Copper & brass | July | 62% | 8% | 30% | 76.8 |
| Transportation | July | 61% | 9% | 30% | 75.8 |
| Energy | July | 59% | 9% | 32% | 75.3 |
| Aluminum | July | 59% | 9% | 32% | 75.2 |
| Plastic resins | July | 57% | 9% | 34% | 73.9 |
| Paper | July | 49% | 4% | 47% | 72.1 |
| Corrugated | July | 50% | 5% | 45% | 72.1 |
| Industrial machinery | July | 51% | 7% | 42% | 71.8 |
| Molded plastics | July | 50% | 8% | 42% | 71.3 |
| Tooling | July | 49% | 7% | 44% | 71.1 |
| Semiconductors | July | 36% | 11% | 53% | 62.5 |
| Passive electronics | July | 62% | 28% | 5% | 67.0 |
| Computers | July | 25% | 23% | 52% | 51.5 |
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