Monday, February 28, 2011

Margin Compression Soon To Hit All Producers

Commodity price explosions aren't just igniting Middle Eastern protests against the rising cost of food staples.  They're now impacting the margins of producers in the earliest links of the global supply chain.  Witness the margin compression at PPG Industries over copper prices.  Its market dominance in specialty coatings means it can afford to pass price increases to its customers.  That's good for PPG's bottom line and bad for every single industrial user of its coatings. 

Companies in competitive industries are in for a rough ride.  The big U.S. automakers will face a very difficult climb back to health in the face of rising material costs.  Indian car and bike makers are feeling the pinch from input prices.  Companies at the very end of most value chains (that is, retailers and their servicers) will be in the worst possible position in 2011. Expect more stories of companies facing hard choices between raising prices for end customers or reporting lower earnings.