Here's some interesting snippets the economy from the cost/production side.
mad2
Copyright 2000 Cahners Business Information, a division of Reed Elsevier Inc.
All Rights Reserved. ÿ
Purchasing Magazine
June 1, 2000
SECTION: PURCHASING HOTLINE; Pg. 7
LENGTH: 2468 words
HEADLINE: PURCHASING HOTLINE
BYLINE: Staff
BODY:
ÿÿÿECONOMY
ÿ
New order index surges. At the moment, the U.S. economy looks unstoppable. Despite five Fed interest rate hikes since last June (at a quarter point apiece), our diffusion index tracking new orders from buyers' perspectives has continued to rise. In the past four months alone, the index has gained 14 points, hitting a record high of 64 last month. Since it has been nearly a year since the Fed began its "gradualistic" approach, the lag-factor argument is starting to look a bit thin. We're glad to see the Fed becoming more aggressive in raising benchmark short term interest rates by a half point last month.
ÿ
Manufacturing capacity utilization continues its upward creep. Industry segments past their 1994-1995 peak operating rates include: petroleum products (95.2% now compared to 93.4% at last peak), semiconductors (95.7 vs. 92.8), chemicals and products (81.3 vs. 80.8). Segments still operating well below prior peaks include: iron and steel (88.3 vs. 97 at last peak), fabricated metals (77 vs. 85.4), computers and office equipment (76.5 vs. 88.4), paper and products (85.8 vs. 93.1), pulp (91.6 vs. 96.9), and rubber and plastic products (83.3 vs. 91.3).
ÿ
Economists revise macro forecast-again! For the ninth time in nine months, the Blue Chip consensus forecast for Real GDP in 2000 rose last month (to 4.7%). Sixty percent of Blue Chip panelists now believe the Fed will raise interest rates by another 75 basis points from current levels. Odds of recession starting in the next 12 months: 18%. Odds of a recession in the next 24 months: 33%.
ÿ
Quality performance plummets. The word "plummet" might be overstating the case, but for an index that rarely moves out of a tight 48%-50% range, a drop to 44% is big news. In the history of this indicator, it has been lower on only one occasion (in 1997). Implication is that the combination of strong demand and short labor availability is starting to yield some noticeably sloppy work. Rising numbers of quality rejects suggest that the big productivity growth boom in manufacturing-largely a function of overtime at the nation's factories-may be reaching a breaking point.
ÿ
Purchasing's Leadtime Index fell to 101.5 in April and to 100 last month after surging to 110 in March. Still, in context of its long-term trend, this index is spending a little too much time in the positive zone for comfort. According to Purchasing's latest grassroots buyer survey, one in three buyers surveyed nationwide say they've begun to experience some shortages of supply. Latest diffusion indexes tracking general leadtime trends for various commodity groupings finds-in order of severity-rising supply pressure in semiconductors, aluminum, copper & brass, steel, machinery, petroleum, plastic resins, industrial chemicals, transportation services, pulp, corrugated and paper.
ÿ
Attention economic forecasters! Transitional technical difficulties (Don't ask!) will make it impossible for Purchasing Magazine to accept Crystal Ball contest entries via the Web this year. That means snail mail is your only option for 2000. Official Crystal Ball entry coupon appears on page 23 of this issue. You can also download a .PDF version of the coupon at www.purchasing.com. Deadline for mailing entries is June 30, 2000. Grand prize is $2,500 cash.
ÿÿÿÿPRICES
ÿ
U.S. Steel will increase transaction prices by $30/ton on certain standard pipe, line pipe and oil country tubular goods shipped in July. The price hike applies the three product lines in outside diameters of 8.63-20 inches. This is the latest in a series of octg and other pipe and tube price increases by the domestic steelmaker. Increased oil production and trade cases against imports from most of the world's major producers of seamless and welded pipe and tube have helped U.S. mills raise prices repeatedly since the middle of last year.
ÿ
Excessive production continues to depress lumber prices, which have slipped 29% from their mid-1999 peak. Supplies in the pipeline appear more than adequate for immediate needs but a recent industry analysis suggests that lumber has become a by-product of wood chip production. With wood pulp prices high, sawmills don't want to lose revenue from chip sales.
ÿ
Brokers now see London Metal Exchange copper averaging 87 /lb ($1,918/tonne) this year, compared to 71 ($1,565) in 1999. Reason: The market is headed for a modest supply deficit this year, according to a poll of brokers at J.B. Were & Son, Scotia Mocatta, Rudolf Wolff and Nomura Securities.
ÿ
A hot summer could cause a natural-gas price spike to $3.50-$4 per 1,000 cubic feet, predicts Daniel Yergin of Cambridge Energy Research Associates. Since the first of the year, gas prices have gone from about $2.15/mcf to $3.17. Yergin cautions that the same supply-demand market vulnerability that hit crude oil earlier this year could strike natural gas since new production isn't growing significantly enough to match anticipated demand growth.
ÿ
Spot-market sheet steel prices are up over 20% since mid-1999 because strong domestic demand and lower imports have supported higher shipping levels. Analyst Mike Gambardella at J.P. Morgan Securities says sustained improvement in global steel fundamentals will enable domestic producers to boost prices further in 2000.
ÿ
Paper-mill buyers will fight another market pulp price hike due this summer. Many analysts expect most pulp mills to follow Georgia-Pacific's announced $40/ton increase for July. The GP move will bring southern bleached softwood kraft (sbsk) to $700/ton, northern bleached hardwood kraft (nbsk) to $690/ton, and southern bleached hardwood kraft (sbhk) to $680/ton. With paper demand so strong, the analysts say pulp is a seller's market.
ÿ
The merger of Reynolds Metals into Alcoa will stifle competition and lead to higher prices for aluminum mill products, says Michael Lynch, chairman of Chicago-based competitor McCook Metals. "Government approvals of the Alcoa-Reynolds deal will further strengthen Alcoa's ability to dominate the aluminum industry and control prices in key markets," Lynch warns. The exec contends that the merger "certainly will set off a tidal wave of consolidation as companies struggle to compete" with Pittsburgh-based Alcoa, the world's largest producer. Lynch fears the end result will be a cartel-like supply base "with increased power to control prices and stifle smaller, more innovative competitors."
ÿ
Phosphate market prices remain weak, and no surge is expected for the rest of the year. Domestic producers have attempted to stabilize prices by removing nearly 2.8 million tons of capacity through plant closures and shutdowns. However, these actions are being offset by an onslaught of new capacity offshore. "We would look for no better than flat pricing," says analyst Christine Farkas at Merrill Lynch. "I'd say that any future price recovery will probably be limited, based on the capacity that's coming up."
ÿ
By mid-summer, analysts think gasoline prices may return to the $1.60/gallon peak seen in March. Reason: Gas may be in short supply at the height of the driving season. Lately, petrol has been selling at a national average of $1.43/gal. However, with U.S. stocks hovering at around 200 million barrels, gas supply is nearly 20 million barrels below year-ago levels.
ÿ
Macroeconomic worries are behind spot aluminum's fall to 66 /lb on the London Metal Exchange, says analyst Roy Carson at LME trader ScotiaMocatta. However, he thinks the metal is "ripe for a technical recovery" to 68 -70 sometime next quarter. At the same time, Carson admits that, "Sustained market strength isn't apparent, so the mills' sought-after price of 73 will be tough to achieve."
ÿ
Prices for restricted and unrestricted uranium have declined due to an activity downturn in the long-term uranium market. Analysts at TradeTech say the unrestricted price is at $7/lb from $7.25, while the restricted price is $8.70, down 30 .
ÿ
World demand for gold should improve about 20% over 1999 levels, so strong futures prices should be the rule in 2000, suggests Canada's Barrick Gold Corp. The mining company's CEO Randall Oliphant expects gold prices to improve 20% this year to $300/ounce. Gold is trading near $280 on the international market, only 12% better than 1999's $250 average, the metal's lowest market value in 15 years.
ÿ
Pricing for maleic anhydride continues to rise, driven by rising costs for butane, its primary feedstock. Market tags now average 48 with a 3 -4 /lb April increase now in effect. Nevertheless, demand remains strong, bolstered by a healthy market for unsaturated polyester resins and growing use of maleic anhydride as an intermediate for production of 1,4-butadiene.
ÿ
Prices for styrene-butadiene latex continue to climb as producers seek to cover rising raw material costs and to generate cash for reinvestment. Market sources say price tags have risen 9 -10 /lb so far this year.
ÿ
Air Products and Chemicals will boost prices for all grades of polyvinyl alcohol by 5 /lb to cover higher costs for such raw materials as vinyl acetate monomer.
ÿ
A market share-driven price war in the graphite electrode mart has cut prices by 5%. Analyst Brian McLoughlin at J.P. Morgan Securities believes sales tags will rise off the current $2,500/ton price average in second half 2000. "The combination of rising demand from the steelmakers and high graphite electrode capacity utilization (in the early 90% area) will lead to higher prices," he says.
ÿ
Revere Copper Products and other mills have raised fabrication charges for standard sizes of copper sheets and coils by 3 /lb for 16-32oz weights and 5 for 12oz weights.
ÿ
Hewlett-Packard cut prices by up to 21% on its line of business desktop personal computers, including Brio business, Vectra corporate and Kayak workstation PCs. Price cuts vary according to machine configuration.
ÿÿÿÿMARKETS
ÿ
U.S. consumption of softwood lumber is expected to slide 2.9% to 61.2 billion board feet, suggest analysts at R.E. Taylor & Associates. While new-housing construction is performing better than expected this year, Taylor & Associates sees single-family construction sliding to 1.55 million units from 1.66 million in 1999, reducing lumber demand by 6%. Atop that, use of such construction-grade lumber substitutes as steel, concrete, and engineered plastics is expanding at a rate of 500 million board feet per year.
ÿ
Geon Co. and M.A. Hanna Co. are merging in a $570 million deal that will form the world's largest polymers company. The new Cleveland-based company, as yet unnamed, will have initial annual sales of about $3.5 billion. It will produce and distribute polymer products, which include plastics, rubber, resins and industrial films.
ÿ
Oversupply and low market prices has caused Climax Molybdenum to curtail Colorado molybdenum production by 20% or five million lb/yr. Metallurgical quantities will be reduced, but not molybdenum chemical products, says vice president John Fenn. Molybdenum is used as an alloying element in iron, steel and nonferrous superalloys. Molybdenum compounds also are used as lubricants, pigments and catalysts.
ÿ
Eastman Chemical continues its expansion into specialty chemicals with the purchase of McWhorter Technologies. Kingsport, Tenn.-based Eastman, a leading bulk chemicals firm, will pay $355 for the Carpentersville, Ill.-based McWhorter, which makes specialty colorants and resins used in paints and fiberglass.
ÿ
Corning will expand production at its Photonics Technology plant in Erwin, N.Y., and will open a new $50 million photonics factory in Scranton, Pa., this summer. Reason: Demand is booming for the pure-glass fiber used by information networks that carry vast amounts of data.
ÿ
A coalition of lumber buyers and distributors is lobbying Congress to overturn a 1996 trade pact that imposes a tax on Canadian lumber exports to the U.S. According to the coalition, the pact makes lumber more expensive, pushing up costs. Proponents of the agreement say the tax on Canadian lumber protects the U.S. timber industry because the Canadian government sometimes keeps lumber prices artificially low to boost exports.
ÿ
North American motor-vehicle assembly totaled 6.7 million cars and trucks through April, representing a 4% gain over year ago (6.4 million). Ward's Automotive Reports estimates four-month U.S. vehicle output at 4.9 million, up 3.1% from 4.7 million last year. Canadian production rose 2.9% over year ago to 1.2 million. Mexican assembly totaled 624,000 units, a year-over-year gain of 13.4%.
ÿ
Boeing has passed the 1,000-unit order mark for the 757 single-aisle jetliner first introduced in 1983. The family includes the 757-200 for 229 passengers, the 757-200 freighter, and the 757-300 for 289 passengers. A new American Airlines order for 20 757-200s will keep assembly going through 2002, notes Seddik Belyamani, executive VP, sales and marketing at Boeing Commercial Airplanes Group.
ÿ
Brunswick Technologies, a manufacturer of composite reinforcements, is fighting a hostile takeover attempt by CertainTeed, a Valley Forge, Pa.-based maker of building products. CertainTeed is a unit of French conglomerate Compagnie de Saint-Gobain. Brunswick Technologies is an independent firm based in Brunswick, Maine. It makes carbon reinforcement and glass-fabric products.
ÿ
Volvo and Renault have created the world's second-largest manufacturer of heavy trucks. Volvo is buying VI/Mack, Renault's truck division. In turn, the French firm is taking a 20% stake in the Swedish company. The deal will allow Volvo to gain 25% of European and American markets and to have significant presence in Latin America and Asia. Production is estimated at 165,000 trucks (bigger than five tons) annually.
ÿ
The Saturn division of General Motors will spend $1.5 billion to expand its factory in Spring Hill, Tenn. Cynthia Trudell, president, says $1 billion will be spent to produce a new, small sport-utility vehicle plus the next generation of the S-series small coupes and sedans. GM will spend $500 million on a 450,000 square foot addition plus machinery to build a new line of 4-cylinder engines for use in Saturns and other GM cars. GM spent $5 billion in 1990 to start the Saturn line from scratch.
ÿ
Smurfit-Stone Container is shutting a corrugated container plant in Sand Springs, Okla. The plant produces about 500 million square feet annually. Smurfit-Stone plans to shut four to eight container plants this year, after closing seven in 1999, as it works to reduce excess capacity.
ÿÿÿÿ
LANGUAGE: ENGLISH
LOAD-DATE: June 8, 2000 ÿ |
