We continue to see many of the same parallels to late 2007 thru mid 2008. Aside from the food riots that are repeating (this time around influencing political events), we are seeing the same commodity inflation starting to hit the cost side of corporations. If the pattern repeats, commodities will continue to go up until eventually the system creaks under the weight of excessive cost. Whirlpool (NYSE:WHR) yesterday was the latest company to complain of high input costs and it’s stock was dutifully punished. With the lag in the supply chain I expect this to be a much larger factor beginning in Q3. The question is whether global multinationals will try to protect profit margins, by starting new rounds of layoffs as a response…. assuming of course they cannot pass along price increases to the end consumer (doubtful) that is generally far weaker then he/she was in 2007.
If job cuts (to protect margins) are the ultimate outcome of central banking easy money policies, the irony will be fantastical….
- The impact of escalating steel prices in the U.S. is starting to filter through supply chains, with companies that buy and process steel raising their own prices, stockpiling in advance of possible more increases and boosting volume to offset rising costs.
- Steelmakers have increased prices six times, for a total increase of 20% to 30%, since November on basic flat-rolled steel, used in everything from cars to toasters, to offset higher input costs of raw materials, such as iron ore and coal. Higher costs for steel, which are expected to continue well into this year, are hitting bottom lines of companies and prompting additional price increases.
- Caterpillar Inc. (NYSE:CAT), the world’s biggest maker of construction and mining equipment, expects higher sales volumes and possible price increases on its own product to offset higher steel costs which represent less than 20% of its material cost. It also buys materials in advance when it expects prices to rise. “We are always looking ahead,” said Chief Financial Officer Edward Rapp.
- Emerson Electric (NYSE:EMR) has been increasing prices to its customers, redesigning some products and evaluating production processes to counter higher material expenses, which cost the company twice as much as anticipated and contributed to lower-than-expected profit from the quarter ended Dec. 31.
- Appliance makers like Whirlpool Corp., too, are feeling the pinch and have announced price rises of 8% to 10%, although those full increases may be hard to pass on without losing market share to foreign rivals.
- But for the most part, consumers of automobiles, appliances or utensils won’t feel the brunt of steep steel increases. “We have seen these input prices going up sharply for a period of time, but there have been very little pass-through to final consumer markets,” said IHS Global Insight Chief Financial Economist Brian Bethune.
This is a guest post written by Trader Mark who runs the blog Fund My Mutual Fund.
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