PUBLISHER'S VIEWPOINT
March 2005
Mood Upbeat, Prices Still a Problem

Those of you who know me know you can count on me to keep a secret. But that doesn’t mean I don’t learn a lot by eavesdropping on bar and cocktail party chatter. We were out at the MAFSI/NAFEM conference in Miami Beach and a supplier sales meeting in January, and I listened closely. I’d characterize the current mood as cautiously confident, at least from an E&S sales perspective. Most suppliers I’ve spoken with recently are pretty upbeat about 2005. They see a lot of chain activity and a gradual return of the street and spec markets.

But sales are one thing, profits another. Most manufacturers are still struggling with a gap between material costs and their own pricing. A few friends have shared numbers with me from the second half of last year and they are not pretty. One said his company suffered a loss in November for the first time in decades.

Kent Motes, who tracks price increases through his extensive AutoQuotes database, says most manufacturers appear to be following a stepped-increase approach to bridging the gap. “Almost no one went wild with the January increases,” he says. “It seems most people are trying to raise prices a bit at a time.” This underscores market reality: While things are better, this is still a very competitive environment with too many suppliers chasing a maturing market.

While things are better, we still see too many suppliers chasing a maturing market.

 And the simple reality that the big chains control a large portion of the E&S market makes it more difficult. While I’ve heard most of the major chains have given their key suppliers a few percentage points, a few doesn’t fully close the gap. And the street and spec markets are still squirrelly enough to make it hard to pass through big increases.

On the materials side, it appears some of the pressure may be coming off. Tom Stundza, executive editor of Purchasing magazine, noted in his e-news Flash Steel Report the end of January that the steel mills have not gotten all they wanted from their big customers in the automotive and appliance worlds. This, and a bit of a general manufacturing slowdown, have taken some pressure off carbon steel products, such as cold-rolled.

Still, it appears E&S manufacturers will continue to be under cost pressures, which means they’ll likely raise prices again mid-year. We hope our operator friends will at least give their suppliers a hearing on this issue.

Cheers,

Robin Ashton
Publisher