Price inflation affects limited area

Pressure to hike prices remains relatively low. In the 12-month period ending March 2002, product price inflation accelerated in only four industries from the PLANT ENGINEERING factory equipment and tools roundup. Average prices for other hand and edge tools rose 5.6%, tags for pumps grew 2.7%, welding apparatus prices rose 1.

By Staff June 15, 2002

Pressure to hike prices remains relatively low. In the 12-month period ending March 2002, product price inflation accelerated in only four industries from the PLANT ENGINEERING factory equipment and tools roundup. Average prices for other hand and edge tools rose 5.6%, tags for pumps grew 2.7%, welding apparatus prices rose 1.9% while average air and gas compressors tags grew 2.7%. All four of these industries, along with five others, enjoyed an A margin grade. That means manufacturing-related margins are near record-level highs, and buyers have some negotiation room to push for lower prices.

A widespread resurgence in inflation for basic metals may begin to threaten the bottom line. In March 2002, prices for aluminum increased 2.7%, while prices for steel mill products rose 2%. Tools producers, however, are being aggressive about protecting themselves. Consider air and gas compressors. Here, increased spending on basic metals helped push per-unit spending on raw materials ahead by 0.13% from February to March. But producers countered this increase with a 0.8% price hike. The cost/price inflation disparity added 39 cents to the bottom line for each $100 of product sold. Margins in the air and gas compressors industry now stand just six cents short of their 1986-2002 record high.

Returning manufacturing-related margins to their 5-yr average level would require air and gas compressor manufacturers to lower average prices by 2.5%. Other industries that can afford to lower prices (and their 5-yr average price targets) include: other hand and edge tools (-4.4%), other hardware (-3.6%), other power transmission equipment (-4.7%), conveyors (-4.3%), hoists and cranes (-3.5%), welding apparatus (-3.5%), and pumps (-3.6%).

Price/cost/demand roundup

Industry SIC Average Product Prices Average Product Prices Direct Mfg. Costs Direct Mfg. Costs Growth in U.S. End Markets Growth in U.S. End Markets
the average producer in an industry. Grades of A to A+ mean plant engineers may be able to strike a better bargain with suppliers and better control plant costs.

Other Hand and Edge Tools 3423 2.92 3.57 rising A -0.90 -2.31
Hand Saws and Saw Blades 3425 -0.56 -0.70 rising C -1.68 -1.59
Other Hardware 3429 1.81 1.79 stable A -2.28 -2.04
Other Power Transmission Equipment 3568 1.88 1.88 stable A -6.94 -6.69
Conveyors and Conveying Equipment 3535 1.66 1.55 stable A -3.31 -5.53
Hoists, Cranes and Monorails 3536 1.65 1.30 stable A -0.77 -1.93
Industrial Trucks and Tractors 3537 1.25 0.91 stable A -3.55 -5.45
Metal-Cutting Machine Tools 3541 -1.97 -3.62 stable F- -6.59 -9.17
Machine Tool Accessories 3545 1.94 1.87 stable C -6.28 -6.71
Power Driven Hand Tools 3546 1.97 1.91 stable C -0.60 -0.79
Welding Apparatus 3548 1.73 1.91 stable A -4.66 -3.59
Pumps and Pumping Equipment 3561 2.40 2.72 stable A -2.58 -3.18
Air and Gas Compressors 3563 1.94 2.12 stable A -2.58 -3.18
Speed Changers, Drives and Gears 3566 2.08 1.80 stable A -6.94 -6.69
Transformers 3612 -1.07 -1.42 rising D -4.66 -8.64
Motors and Generators 3621 0.41 0.29 stable D -1.93 -4.77
Process Control Instruments 3823 1.48 1.42 stable B -4.39 -2.56
Fluid Meters and Counting Devices 3824 1.14 0.49 stable C -4.39 -2.56
Instruments to Measure Electricity 3825 0.61 0.64 stable F -4.46 -10.08