Industry Execs Bullish On 2006 But Remain Concerned About Steel And Copper Pricing

Jan. 6, 2006
A healthy commercial construction market and some activity in the industrial business will help propel the electrical market in 2006, according to an exclusive Electrical Wholesaling survey of electrical distributors, electrical manufacturers, independent manufacturers’ reps and association executives.

A healthy commercial construction market and some activity in the industrial business will help propel the electrical market in 2006, according to an exclusive Electrical Wholesaling survey of electrical distributors, electrical manufacturers, independent manufacturers’ reps and association executives. While most respondents gave an enthusiastic thumbs-up to the overall business climate in 2006, they were concerned about further price increases in steel and copper, the state of new product introductions in the electrical market and the evergreen problem of poor communication between electrical manufacturers and their business partners.

Some sanity may return to copper and steel pricing. Many respondents are concerned that any increases in the cost of copper and steel could once again mask real industry growth. While few industry executives expect steel and copper pricing to continue on another wild ride through 2006, they wouldn’t predict any substantial price declines. Veterans who have watched the copper market for a lifetime said they stopped trying to predict copper prices years ago.

In another life, Bob Snyder was a senior marketing executive with Carol Cable and lived day-to-day with the cyclical nature of copper prices. As vice president of the Equity Electrical Associates/EDN marketing group, he still watches steel and copper pricing, but he says his experience in the wire and cable industry taught him that it’s "next to impossible" to predict the price of a commodity.

"Typically, supply and demand dictate prices, but financial markets sometimes can create a price level," he said. "In addition, today we compete with consumption on a world-wide basis. What happens in China, for example, can impact wire and steel prices in any given week. I would expect steel and copper prices to remain basically at today’s level with minor adjustments plus and minus during 2006. Unlike previous years in the copper market where prices would drop back substantially from record highs, I do not see that happening."

Snyder also said high steel and copper prices can create a false impression of growth. "In order to measure true growth, a distributor must secure from his vendors the real story in the form of pounds purchased compared to a previous period," he adds. "A big increase in dollars is always fun to review, but it does not tell the true story."

One building wire manufacturer who requested anonymity expects that copper prices will begin to soften and move down to more reasonable levels. Any change will impact building wire most because copper represents 75 percent of its product content. He expects prices to range from $1.60 to $1.80 per pound in 2006.

"There will be additional worldwide copper production coming on line next year, so the question is demand," he said. "I predict demand to be similar to this year, so inventories should begin to build. It’s all a guess!"

Electrical contractors have been hit hard by higher commodity prices, particularly when they have already locked in on a bid price. Bob Baird, vice president, Independent Electrical Contractors Inc., Alexandria, Va., says contractors’ profits have suffered because of the pricing situation. "Copper prices have driven cable and equipment prices significantly beyond levels anticipated when jobs were bid," he said. "Contractors will be seeking to include materials cost escalation clauses in contracts."

Equity’s Snyder said that manufacturers are finding it "difficult if not impossible" to quote long-term jobs involving conduit and wire. He says when a contractor asks for a large quote on pipe and wire to be shipped in four months, if the vendor is interested in providing pricing, there may request a "metals escalator" clause in the quote that may comes into effect at the time of shipment if prices have increased.

Reps are stuck in the middle on the pricing issue. Said Larry Keating, principal, Electrical Products Co., Omaha, Neb., "It costs us dearly. We are no longer able to sell on merits of product. It’s just who has the lowest price."

Bob Powell, principal, Kunz-Powell and Associates, Malvern, Pa., sees the wire pricing issue from the perspective of both a rep and as a wire manufacturer from his days with Hatfield Wire and Cable. He says distributors in the Philadelphia market seem to be more willing to accept copper increases than on other commodities, but believes that if international demand stays high, there will be no downward pressure on pricing.

"New home construction will slip a bit in 2006, but not enough to cause a drop in copper," he said. "Contractors have been hurt where they have been locked into a price and a completion date. In other cases, they have tried to delay starts to see if the market cools. Many projects had been put on hold when the economy was struggling. Now that it’s improving every month, I believe that they should continue to break."

Gary Brusacoram, principal, Andrews Johnson Brusacoram, Minneapolis, said that compared to what’s happened with PVC pricing in the past year, the price increases for copper and steel look minimal. But in looking at the big picture, he is concerned that U.S. businesses have "surrendered" to the oil/gas industries and the Chinese and Indian economies as an economic influence of what happens to pricing. "What the dot-com was to the last decade, they are to this decade," he said. "Regardless of price levels on commodities, the market needs price stabilization. The contractor or developer can’t continue to plan with the current uncertainty."

Product launches fizzle. Why are some new products smash hits in the electrical market while others sputter on the launch pad? That question apparently touched a nerve with survey respondents, and they weren’t shy about voicing their opinions on the situation. When asked what percentage of successful new product launches, most survey respondents pegged the number at 25 percent or less. That would seem to be a low percentage, when one considers the millions of dollars that electrical manufacturers invest in new product research and development.

Yet distributors and rep respondents traced the high failure rate to what would seem to be some market basics, not enough time spent listening to end users and business partners, inadequate market planning and communication and insufficient quantities of product launch materials available to distributors’ and reps’ salespeople on the front lines introducing products in local markets.

Manufacturer and rep members of the National Electrical Manufacturers Representatives Association (NEMRA), Tarrytown, N.Y., saw the need for more effective product launches, said Hank Bergson, president. The association will soon release its "Guidelines for Marketing Promotions and Product Launches,," jointly developed by NEMRA and its NEMRA Manufacturers Group (NMG).

Paul Suzio, executive vice president, Bridgeport Fittings Inc., Stratford, Conn., says successful product launches are a matter of focus on the part of reps and distributors. "Too many reps and distributors feel it is too costly (time and effort) to introduce new products to the market because they are most interested in big ticket, large-volume orders that produce little to no gross margin."

One rep who requested anonymity said many recent product launches have been relabeling or sourcing of products, and were not ground-level product development efforts with marketing input and customer needs in mind. He said others seem to be imitations of existing products. "Many of these products are creating conflicts among reps and distributors as they decide whose product to sell or stock," he said. "The products that address labor-saving ideas have been the most successful and specification product upgrades are also of interest, but line extensions are not moving."

Gary Brusacoram of Andrews Johnson Brusacoram said new products are critical to his company’s market growth, and that they generate excitement in the sales force, demand shelf space, can be great new income producers and can be used effectively a management tool. But for a new product to be a winner, he says manufacturer have to have the proper resources available.

"There aren’t any problems with launching a viable new product or presenting a promotion when the sales force is given a total packaged kit in a reasonable time," he said. "New products launch and marketing kits should become a stock-keeping unit (SKU) so the sales force can order them as that market mandates. Our little market has 300 distributor sale personnel, and too often, we get one sample or promo sheet for our eight salesmen."

Distributors believe manufacturers need to plan out their launches more effectively. Doug Borchers, vice president, Dickman Supply Inc., Sidney, Ohio, said distributors’ salespeople do a better job of selling new products when some type of spiff is available.

Bill Elliott, president, Elliott Electric Supply, Nacogdoches, Texas, says it’s critical that manufacturers and their selling partners focus on end user benefits. "When we are selling time-saving products, we can appeal to contractors. But when we sell to homeowners, manufacturers need to advertise to people who will own these homes. We need to plan ahead for product launches. Frequently, manufacturers spring promotions on us with less than 30 days notice."