Factors Affecting Product Cost

Staff -- Purchasing, 10/7/2004

• Degussa has agreed to pay $1.5 million in fines after pleading guilty to conspiracy charges of price fixing in the market for organic peroxides. The Justice Department charged that Degussa's British unit and other chemicals companies conspired to fix prices of the organic peroxides t-butyl perbenzoate and t-butyl peracetate from August 1997 to March 1998. The substances are used to produce a variety of rubber and plastics products. Earlier, France's Elf Altochem pleaded guilty to participating in the conspiracy and agreed to pay a $3.5 million fine.
• High steel prices could come down later this year, or early in 2005, when steel supply and demand become better aligned. So suggests Larry Denton, chief executive of Dura Automotive Systems, speaking at a Banc of America Securities online conference. He says auto-parts companies fought price increases with some success this year, but eventually had to pay higher prices, putting pressure on operating margins.
• Don't expect any near-term slippage in coal prices, says analyst John Bridges at J.P. Morgan Securities. Coal inventories at utilities remain unusually low, he says. With no indication yet of increased coal supplies into the market by producers, "spot prices seem set to remain high for some time, taking contract prices higher."
• Prices for trucking services are higher than expected, and probably will continue to rise as the economy continues to expand, suggests Bill Zollars, chief executive of Yellow Roadway. He says the trucking sector has experienced robust volumes this year, and "there has been a little better pricing environment than even we had expected."
• Heavy rainfall and damage from flooding in the Southeast and mid-Atlantic states promises to boost wood product prices in coming weeks. Buyers already are scrambling for building materials while forest firms are struggling to obtain logs to keep sawmills and pulp mills in operation. Traders anticipate long-term demand growth—and higher pricing—to repair hurricane and tropical storm damage.
• Cement shortages are delaying construction in some areas and sending prices as much as 20% above year-ago levels. Shortages of cement—the basic ingredient for concrete—are evident although plants are running near full capacity. Imports are constrained because cargo ships are tied up and freight rates have spiked. Rail backlogs in the U.S. have compounded the problem.