Factors Affecting Product Cost
Staff -- Purchasing, 12/9/2004
- The U.S. Energy Dept. has raised its forecast for winter heating oil, propane and crude oil prices in the U.S. Residential heating-oil prices are now seen averaging $1.88 a gallon from October to March. Heating-oil expenses are expected to average about 37% above last winter while propane for heat is now seen paying about 26% more this winter. Energy expects winter costs for natural-gas heat to be 15% higher than last winter.
- With mid-November natural gas spot prices around $5.85, Fitch Ratings' analysts see no quick end to ongoing price volatility. "Higher gas prices and market volatility will likely be the norm for several years, with long-term gas prices to be in the range of $4 to $6.50 per million Btu," says Ellen Lapson at the New York-based rating agency.
- Steelmakers are trying to boost tool steel prices by an average 7% before year's end. Suppliers contend that after a three-year period of depressed prices they need to offset rising energy, scrap and production costs. Buyers, however, question whether the 2004 tool steel market needs a fourth increase in 2004—especially since they are trying to offset their own rising energy and manufacturing costs.
- Buyers may see a price slide of as much as 3% next year for rechargeable batteries despite higher costs for raw materials. Reason: Feeling competitive heat from emerging Chinese battery makers, lithium-ion cell battery manufacturers in North America, Europe and Japan are looking into different chemical recipes that will reduce the amount of materials such as cobalt needed. Some firms also are moving manufacturing operations into low-cost labor regions such as China.
- Lack of new capacity in major ocean cargo routes practically guarantees that freight rates will continue to rise in 2005. Rates increased in 2004 because the vessel-capacity surplus of two years ago has become a shortage. The average break-even rate for a Baltic Capesize freighter, for example, now is as high as $15,000/day. Shippers fret that demand for shipping space already registered for 2005 means that industry-wide vessel-capacity soon will be fully committed, pushing rates up further.
- The U.S. Energy Dept. has raised its projected fourth-quarter price for U.S. benchmark West Texas Intermediate crude oil to $51 a barrel. That's about $20 a barrel above the oil price in the same period last year. U.S. oil prices rose sharply in October, partly due to production losses in the Gulf of Mexico caused by Hurricane Ivan. Crude oil prices are seen remaining high, in the mid to high $40s, through 2005.
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