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Material Increases

April 5, 2005

From energy to steel, prices of basic commodities continue to rise.

If the recent past is an accurate predictor of basic materials costs, U.S. manufacturers aren't going to like the future.

In March, the most recent month for which data are available, natural gas prices rose for the thirty-second consecutive month, steel prices for the eighteenth month, aluminum prices for the seventeenth month, chemicals for the fourteenth month, corrugated containers for the fourteenth month, paper for the thirteenth month and caustic soda for the eleventh straight month, according to the Tempe, Ariz.-based Institute for Supply Management (ISM).

Indeed, March of 2005 was the thirty-seventh consecutive month that the prices portion of ISM's manufacturing activity index had registered higher prices. The prices index in March was at 73%, some 7.5 percentage points higher than February's 65.5%. In March, 51% of the supply managers responding to ISM's monthly survey of manufacturers reported paying higher prices for commodities, just 5% reported lower prices and 44% said prices were unchanged from February.

"At this point, steel seems to be the construction input with the best chance of retreating in price," says Kenneth D. Simonson, chief economist at the Associated General Contractors of America, Alexandria, Va.

Manufacturing and construction, along with mining, constitute the goods-producing sector of the U.S. economy. "Reportedly, worldwide [steel production] capacity is growing, and perhaps the growth rate of demand is slowing in China, India and elsewhere in Asia," Simonson relates. Nevertheless, shipping and currency costs could keep steel prices high in the U.S. even if Asian and European prices fall soon," he adds.

Simonson does not expect crude oil prices to keep rising on average during 2005, although he does anticipate continued volatility-"price swings of several dollar per barrel each month." That, he says, will mean fuel surcharges will remain a fact of business life. "Nobody is going to refuse delivery of materials because of a fuel surcharge, but they may cut into profits if contractors don't make allowance for them or-less likely-pass them on to owners."

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.