SUF trades in Toronto. It's a good sized company.
southernera.com
PGM: platinum group metals (including palladium)
Speaking of dumb questions, what's IB? seriously <g>
From purchasing.com a whole array of input products. Remember purchasing manager bias is deflationary, but realistic. Any way you cut it though, this is NOT a one percent Fed funds environment.
Top Markets Forecast
Inflation watch
Staff
Purchasing
January 15, 2004
OFFICE PAPER
Demand staggers toward recovery
What's happening: Sluggish demand has continued to beleaguer this market since purchasing last peaked in 2000. Office copy paper demand crested at 4.6 million tons in 1999, collapsed in 2000, and has yet to fully recover. Sales prices for most printing and writing grades were flat or weaker in fourth quarter 2003 compared to earlier in the year. Benchmark copy paper (cut-size white bond #4) used in printers and copiers sold for 19% less at the close of 2003 than at its apex in early 2000.
What's ahead: Market analyst Rod Young at Resource Information Systems Inc. in Bedford, Mass., says demand for copy paper for the office will rebound only slowly in 2004. Buyers agree. Purchasingdata.com's indexes tracking buyers' pricing sentiment remain just barely above neutral, indicating a negligible inflation bias for this industry heading into 2004.
CORRUGATED
Manufacturing rally will boost buys
What's happening: Corrugated box makers saw an increase in fourth quarter demand, but admit 2003 shipments of 382 billion square feet were down for a third consecutive year. Sales tags for 42-lb unbleached kraft linerboard in the East/Midwest closed the year at $360/ton, 24% off the 2000 peak, according to purchasingdata.com. For 26-lb semichemical corrugating medium, sales at $310/ton were 30% off the 2000 apex.
What's ahead: Factory output is reawakening to fill order pipelines and restock inventories. Four in every five buyers polled by purchasingdata.com in December plan to maintain or boost corrugated buying. That supports the analysts' view of imminent increased demand for boxes. While analysts think prices could start to creep up in 2004, buyers say it won't happen anytime in the next several months.
COMPUTERS
Mavens see return of biz demand
What's happening: U.S. purchasing of personal computers grew more than 7% in 2003 to 56 million units. Large corporate buys of desktops and notebooks were tame, though, so consumer demand, funded by temporary tax rebates, drove the market. Average sales prices for home and business PCs dropped 9% in 2003.
What's ahead: Analysts see a return of business PC buying in 2004, pushing shipments forward by 10%. They also see slightly higher average sales prices this year because of expected global shortages of monitors and certain other necessary components. Purchasingdata.com's Forward Demand Index for computers has turned positive, edging above 50 in December for the first time.. Still, fewer than one in ten buyers see higher prices in the next several months.
INDUSTRIAL MACHINERY
Expect gradual firming in machinery prices
What's happening: Manufacturing will expand capital spending this year. The latest poll by purchasingdata.com shows more buyers (21%) planning to boost purchases of industrial machinery than anytime in the past several months. Production of this heavy equipment has fallen dramatically since 2000; in turn, prices have slipped. But, a slight buying recovery became evident late last year, and equipment pricing stabilized.
What's ahead: Kenneth Kremar, economist at Global Insight, sees 6.5% purchasing gain for machinery in 2004 as a prelude to stronger growth in 2005. Kremar adds: "Once industrial sector capital spending hits its stride and export sales turn the corner in a meaningful way, producers of industrial machinery will have considerably more leeway to increase prices."
ENERGY
High, stable prices projected for 2004
What's happening: U.S. petroleum demand rose only 1.2% in 2003. While use of distillate fuel oil grew substantially, demand for gasoline barely increased over 2002. With no energy bill from Congress, supply has been uncertain and prices high and volatile over the past year. Overall, purchasingdata.com's Energy Price Index rose 17% last year.
What's ahead: Even with an improving U.S. economy, daily petroleum demand is seen growing just 1.5% to 20.31 million barrels. Only slightly higher pricing is projected for heating oils, gasoline and diesel. OPEC crude oil production cutbacks will be offset by moderate growth in noncartel production, but OPEC has made clear that it will guard against any price declines.
TRANSPORTATION SERVICES
China boom creates pricing strike
What's happening: A massive demand spike in service to/from China has been pushing up international air and ocean rates; in fact, the expansion of the Chinese economy has stretched deep-sea shipping capacity to its limit. For example, manufacturers stateside are having trouble getting raw materials shipped from South America.
What to expect: Even-higher rates for waterborne bulk traffic. Rate increases of around 15% are being projected for 2004. Buyers polled by purchasingdata.com expect more moderate local price increases in 2004, as the rebound in domestic manufacturing continues to build. Domestic demand has dropped, especially for high-end services, and price increases will be muted by increased competition in the domestic market.
ALUMINUM
Prices will drift up on improved use
What's happening: U.S. aluminum purchasing slipped last year, confounding market insiders who had expected a second year of consumption growth. But, relatively low manufacturing rates, the drive for better workplace productivity, and continued weakness in nonresidential construction depressed growth in refined-metal consumption. Although production was well below the 2000 peak, it has been rebuilding .
What's ahead: Buyers in December are pessimistic on prices; 94% tell purchasingdata.com they expect stable-to-higher costs this year. The mavens agree, forecasting 6% purchasing growth, a shrinking of the supply surplus, and mill-product pricing pegged to 72¢ London Metal Exchange ingot (up from 65¢ in 2003).
COPPER & BRASS
Suppliers see high demand, prices
What's happening: World copper cathode consumption rose 2% last year, but U.S. use dropped 6%, with purchases of brass mill products down 8%. Regional demand was dull from key end-use markets, such as construction, machinery and electrical. Brass mill prices are pegged to cathode, though, and since global refined copper supply fell almost 14% in 3002, market prices for cathode stayed high.
What's ahead: Copper averaged 80¢/lb on the London Metal Exchange Market last year, up a dime from 2002. Be wary for 2004: Perceptions of future supply bottlenecks—caused by tight supply during a time of rebounding demand—have cathode forecasts in a range of 90¢ to $1.15.
FABRICATED METALS
Buyers will restart orders
What's happening: Manufacturing's move offshore has reduced demand for metals processed domestically. Purchasing of fabricated metals has dropped for three straight years—in fact, it has collapsed 13% since 2000. This has offset minimal growth in purchases of forgings and stampings. Economists are convinced that fabricated metal activity bottomed in October and has rebounded quickly. Forty-four percent of buyers polled by purchasingdata.com in December do plan to increase orders for these types of products.
What's ahead: Many producers of fabricated metals, 43% of the members of the Precision Metalforming Association, expect to see a pickup in business this year. Still, 90% see no problems with delivery leadtimes for their customers.
STEEL
Mills are taking too much, too soon
What's happening: With increased metalworking improving demand for primary products, steelmakers are raising prices helter-skelter. Shutdowns and consolidations have reduced competitors and there are fewer imports, so the mills are seeking to pass along their higher raw material costs. Forty-two percent of buyers polled by purchasingdata.com in December will continue boosting steel buys and 37% are accepting higher prices.
What's ahead: Global Insight steel analyst John Anton says "the mills are endangering the rally by trying to grab too much at once." Instead of a steady diet of modest increases through the first half of 2004, he and other mavens now see a pricing spike that tops out in the first quarter—followed by a sharp downward correction.
SEMICONDUCTORS
Supply to tighten, tags to rise
What's happening: Semiconductor demand increased sharply in the second half of 2003. Inventory in the supply pipeline has been worked off and prices have started to firm for many grades of chips. Demand is strong for a variety of semiconductors because of strengthening PC, cell phone and consumer electronics equipment sales.
What to expect: One in every three buyers believe that supply will tighten and prices will rise in 2004 because of robust end equipment demand. Analysts agree, saying that many businesses will finally upgrade their computer systems, boosting chip demand significantly. Wireless communications will further increase semiconductor demand, as infrastructure is added and more high-end cell phones ship.
PASSIVES
Firm prices, longer leadtimes
What's happening: Passive prices have taken a beating during the last three years because of high inventory levels and stiff competition for emerging Asian suppliers. Although prices fell, suppliers saw double-digit increases in unit shipments.
What to expect: With passive pricetags being at rock bottom and demand rising, the buyers' market is basically over: Passives demand will be strong in 2004 so pricetags will stabilize and leadtimes could stretch. Any new supply will come through new lines and technology upgrades, in an attempt to bring down production costs, since traditional suppliers are reluctant to add capacity quickly. They still fear the industry recovery could be short lived.
PLASTIC RESINS
It's survival time for basic resins producers
What's happening: Resin markets have been a roller-coaster nightmare in 2003. There remains significant oversupply and weak demand. Producers have aggressively sought price increases, however, because of increased hydrocarbon costs. The impact of natural gas costs on olefin plastics, such as polyethylene, has been especially severe. Producers have rationalized capacity this year, shuttering older plants that have higher operating costs.
What's ahead: Look for very aggressive efforts by plastics producers to significantly hike prices. A top executive at Dow told Purchasing last month that the producers will no longer be the "shock absorber" between energy costs and resins buyers. Producers' profits stink. There is no re-investment potential now. It's either higher prices now or critical shortages in 2005-6. Forget normal market pricing dynamics.
MOLDED PLASTICS
Develop strategic relationships with key molders
What's happening: Plastics processors are being whipsawed by large plastics companies and end customers with growing leverage and buying power. Major molders such as Nypro and Erie Plastics say customers are demanding retroactive price rebates, and often are receiving them. In the meantime, lower-priced foreign competitors are eating around the edges, often using world-class technology.
What's ahead: Smart buyers will increasingly develop symbiotic relationships with the best processors. In those relationships, processors will be independent contract manufacturers, but will be treated like highly valued corporate arms. Buyers awarding global business to the absolute low bidders in e-auctions will be looking for work soon. Forget about pricing based on machine hourly rates.
ORGANIC CHEMICALS
Natural gas still the deciding factor
What's happening: Natural gas and feedstock prices during the Iraq war pushed chemical tags up in early and mid-2003, but only some increases stuck while others came down by the end of the year, despite a reported uptick in business activity for chemical consuming manufacturers in late 2003.
What's ahead: Look for a price spike in the first quarter due to a surge in natural gas prices. Producers will make stronger effort to pass on increases than they have in the past. Look for lighter price pressure after the first quarter, particularly on aliphatic chemicals. Look for more contraction in capacity in production and distribution and more emphasis on freight rationalization. A spike in organic chemical leads last month signals a shift in market power to the producers.
INORGANIC CHEMICALS
Consumer products drive demand in 2004
What's happening: Price increases for inorganics peaked in the early second quarter of 2003 and have backed down in the months since. Producers of caustic soda and soda ash tried three times this year to impose hikes and failed. Huge amount of Asian imports coming in on the West Coast are driving down prices in certain markets. Chlorine is recovering some due to significant new demands for water treatment.
What's ahead: Modest recovery is expected in 2004 in the inorganic market as the economic turnaround creates more orders throughout the year. Chemicals for consumer products will drive demand. Buyers expect modest increases in the first quarter. Overall price outlook is soft for inorganics.
TOOLMAKING
Need tools? Can you speak Chinese?
What's happening: The American toolmaking industry is in a crisis. The National Tooling and Machining Association estimates that 30% of U.S. toolmakers went out of business in the past three years. Orders for machine tools dropped 70% in the past six years. Toolmaking by and large is a very fragmented, inefficient industry in the U.S.—yet still a very vital one.. Don't expect Congress to support bids for quotas, however.
What's ahead: For better or worse, you'll be very dependent on foreign toolmaking: precision tools from Europe and cost-focused tools from Asia, where builders can offer tools for less than the half the cost. Be careful about total cost, however. Your final costs can double if you make lots of engineering change orders, don't closely monitor tolerances and aren't careful about materials of construction. |
