Prices Up, Demand Down for Industrial Distributors

July 18, 2008
Falling dollar and increasing freight costs could impact imported part purchases.

High raw materials costs are driving up prices for industrial distributors while demand for their products has largely declined or remained flat, according to a survey published July 18 by Longbow Research analyst Eli Lustgarten.

Of more than 30 industrial distributors responding, 39% say demand was flat during the June-July period, while another 39% reported declining orders. Responses indicating higher year-over-year demand increased to 23% in June-July, up from 16% in May.

Nearly half of the survey respondents say prices increased more than 10%, with no one reporting price decreases. The price increases are expected to continue, according Lustgarten's report.

"Higher steel costs were the main driver cited by contacts as driving higher prices; stainless steel and fuel surcharges continue to extend across product categories," the report states. "Anecdotal evidence suggests price increases have occurred across product lines. Further, increases have occurred sporadically, with at least three to four increases so far this calendar year, versus normal seasonal price adjustments, which typically occur in January. We expect industrial distributors to take another round of price increases when new catalogs come out in the next three to six months."

Imported parts purchases primarily from emerging markets such as China, India and Eastern Europe increased modestly in June, but the report indicates that imports could decrease as the dollar continues to weaken against emerging-market currencies and ocean freight costs increase.

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