In January, prices for metal powders, pastes and flakes shot up about 8.8%. Producers in the industry that makes metal powders and miscellaneous other metal products (SIC 3399) gave back a portion of the increase in February and March, but tags still sit 6.2% above 2000 year-end levels. Analysis from Thinking Cap Solutions (TCS) suggests that such a large increase cannot be easily defended. Over the past 12 months, the cost of making a unit of output in SIC 3399 advanced 2.1%. TCS estimates that between March 2000 and March 2001, margins rose $2.92 for each $100 of product sold.

Buyers of these products are likely to hear stories about industrial chemicals costs, which are the second most important class of raw materials used in production. Here, per-unit spending is up 18% from 1999 levels. But slower inflation rates for other key materials have mitigated the impact. Milder inflation rates for direct labor and inbound freight also have helped.

Buyers faced with tales of woe about inflation rates for chemicals should get their suppliers to focus on the big picture. By doing so, TCS estimates buyers could avoid at least one-fifth of the price increase that has been put forward since the start of 2001. A buyer, who convinces suppliers to accept the same inflation-adjusted margins enjoyed in March 2000, could avoid two-thirds of this year's price movement. As summer approaches, slowing growth in U.S. end markets for SIC 3399 should make it easier for all buyers to exert downward pressure on prices.

* 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.