Distributor respondents cited strong sales, but concerns over logistics backlogs and highly-elevated pricing.
FCH Sourcing Network’s monthly Fastener Distributor Index (FDI) showed solid acceleration in July after a considerable June slowdown, evidence of a continued strong market for distributors of fastener products amid the lasting COVID-19 pandemic, while the near-term outlook cooled from its recent breakneck level.
The June FDI checked in at 59.6, up 3.8 percentage points from June, which followed a 6-point drop from May. Any reading above 50.0 indicates market expansion, which means the latest survey indicates the fastener market grew at a faster rate than May and remains well into expansion territory. The FDI has remained no lower than 57.7 each month so far in 2021, whereas it was in contraction territory for much of 2020.
For context, the FDI bottomed out at 40.0 in April 2020 amid the worst of the pandemic’s business impacts on fastener suppliers. It returned to expansion territory (anything above 50.0) in September 2020 and has been in solid expansion territory since the start of this past Winter.
The FDI’s Forward-Looking-Indicator (FLI) — an average of distributor respondents’ expectations for future fastener market conditions — fell to 65.3 in July. And while that’s still very positive, it was a the fourth-straight month where that indicator has slowed, including a 10.7-point slide since May (76.0). The FLI recently peaked at an all-time high of 78.5 in March. Nonetheless, July’s mark shows that FDI survey respondents — comprised of North American fastener distributors — expect business conditions to remain largely favorable for at least the next six months. This comes despite continued concern over continued supply chain and pricing issues. The FLI has been at least in the 60s each month beginning with September 2020.
“Commentary continued to point to a supply-demand imbalance, along with labor shortages, accelerating pricing, and logistics backlogs,” commented R.W. Baird analyst David J. Manthey, CFA, about the latest FDI readings. “The Forward-Looking Indicator of 65.3 speaks of continued cooling while the indicator still remains firmly on the positive side, as higher respondent inventory levels (which could actually be a positive for future growth given inventory shortages) and a slightly weaker six-month outlook continues to signal growth, expected in the months ahead, albeit constrained by the aforementioned factors. Net, strong inbound orders and accelerating pricing continue to power strength in the FDI, while meeting the very elevated demand remains extremely challenging.”
Of the FDI’s factoring indices, respondent inventories saw the biggest month-to-month change, by far, with a 19.7-point increase from June to 53.2. Sales gained 3.0 points to 74.4; employment dipped 1.6 points to 61.3; supplier deliveries increased 4.8 points to 87.1; customer inventories increased 6.4 points to 87.1; and year-to-year pricing jumped 6.5 points to a sky-high 98.4.
While selling conditions remain very strong, FDI respondent commentary signals that distributors are certainly concerned with ongoing supply chain issues. Here’s a sample of anonymous distributor comments:
–“Biggest obstacle right now is the worldwide logistics backlog. Booked sales and additional sales opportunities are growing, they’re just difficult to fulfill.”
–“Pricing is out of control. Supply is short. Lead times unbearable. Customers not all [understanding].”
–“The computer chip impact is a serious problem as is finding labor.”
“Customer demands are [down] due to chip shortages, import delivery delays and lack of labor force.”
–“We’ve experienced four straight months of records sales for our company.”
–“Even though July was below June it still was at a high level as this year continues to be on track for record growth.”