It was two years ago that we first mentioned in these pages how the increasing demand for raw materials was fuelling costs for equipment manufacturers. At that time, the price of copper had reached $1.38/lb from a low in 1998 of just 60cents/lb. Even then, those escalating prices, along with those of steel and other raw materials looked set to signal a round of equipment price increases. Amazingly, thanks to increases in production efficiencies and a further chipping away at manufacturers’ already tight margins, equipment prices remained relatively stable.
Now, two years down the line, the price of copper stands at a mind-boggling $4/lb and rising. Other materials including steel have also continued to rise, albeit not at anywhere near the same rate.
Not surprising, then, that most manufacturers and equipment suppliers are now talking about price increases – that’s if they haven’t imposed them already.
No contractor can have failed to notice how much more he is now paying for copper, yet, amazingly, many contractors are now accusing finished-product manufacturers of profiteering. Even more amazingly, some suppliers are even embarrassed to make these price increases.
The fact is that most product suppliers have been working on miniscule single-figure profit margins for many years now. One ac manufacturer even admitted to me once that the simple single-split products he was selling were virtually “loss leaders”. And it is certainly the case that, in recent times, many companies have been supplying and installing equipment at cost in the hope of making a profit on the subsequent service contract.
The future in terms of raw material costs is uncertain, but it is unlikely that we will see any significant price reductions in the short term, so the contractor is going to have to get used to paying more for his equipment and materials and the contractor is going to have to pass that cost on to the end-user.
As we said two years ago: ‘Margins in this industry have been too narrow for too long and suppliers should not be afraid to pass these costs on. After all, we are always saying how undervalued our industry is.’
If we don’t value it highly, why should we expect anyone else to?
Neil Everitt
Editor