Rising raw material prices engulf profit margins
According to US media reports, in June, most production materials experienced price increases. Originally, as the U.S. economy recovered, projects and orders continued to increase, but U.S. construction companies and manufacturers now say that they face potential unpredictable losses due to rising material costs. They have to give up making profits, or pay out of their own pockets to cover the cost of materials in excess of their bids.
Related industry executives said that the price increase of steel, copper, brass, wood, laminates and plastic materials (such as PVC pipe) is particularly unpredictable and difficult to be included in tenders. Due to production and transportation bottlenecks and increased demand, material inventories are always tight. This has brought some material prices to record levels. For example, the spot market price of coiled steel sheets in the United States has risen by more than 80% since the beginning of this year.
For manufacturers and builders, it may take several months from the submission of tenders to the actual start of construction. Jody Giacomini, president of Cathedral Builders, a commercial building cabinet and counter builder based in Jackson, Wisconsin, said that recently, the company prices for plywood, adhesives, laminates and other materials have risen rapidly. Exceeded the company bid price. Jayakmini said that laminates rose by 3% in June and another 3% in July, but laminate prices have generally risen by 1% to 2% per year in previous years. She complained: "How do we price the tender two months from now and still win the business? The current price is simply not certain."
Lisa Goldenberg, president of Delaware Steel, a steel distributor in Philadelphia, said: "Now, I will not make any quotations for steels that have not yet been obtained, and steels that I am not confident that I can get them within 45 days."
At present, the above-mentioned executives say that they pay more attention to the estimation of material costs than ever before. If a company considers too many price increase factors in its bidding, it is easy to be lowered by competitors who have not considered too much. But if the price is undercounted, construction and manufacturing companies will face higher costs in the future. Once a contract is signed, their customers are often unwilling to take these risks.
Harper Construction, a California construction contractor, specializes in projects funded by the US federal government. Its president, Jeff Harper, said that he has already spent about $2 million this year to cover the cost of materials in excess of his bid price. "This is a real gamble." Harper said. "It is very difficult to know how to get a contract among a dozen competitors and not lose money in the process."
Accu-Swiss, a small-scale metal parts manufacturer in California, has recently surged in orders, but its president, Sohel Sareshwala, said the company has suffered a loss for the first time after 21 years of operation, as the rising costs of stainless steel and aluminum and brass have swallowed up Profit, the price of brass has more than doubled in the past 7 months.
Sageschwara said that its customers usually negotiate with the company for a fixed price for multiple batches of parts, and most of them are repeat customers. Constant adjustments to the current price may lose orders.
Affected by the Rising raw material prices engulf profit margins
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