Manufacturers prepared for rising commodities

By Emily Chasan

NEW YORK (Reuters) - U.S. manufacturers are gearing up for an extended rise in commodity prices by hedging and passing on higher costs to customers to limit any impact on their bottom line, company chiefs said on Thursday.

"If you look over time, when the commodities get in a situation like this, it usually doesn't stay for just 2 or 3 years, it usually stays for 5 or 6 years," said Emerson Electric Co. (EMR.N: Quote, Profile, Research, Stock Buzz) Chief Executive David Farr at the Reuters Manufacturing and Transportation summit in New York.

"We're planning for higher commodity prices for at least a couple more years, and we're pricing accordingly and we're structuring our company."

Though high commodity costs have hurt manufacturers' profit margins, few executives at the summit worried about their future impact.

"Our strategy has always been we hedge going forward," Farr said. "We're in it for the long term ... we will go back and will get the price like we always do."

Manufacturers say they have long dealt with commodity price hikes by hedging aggressively with futures contracts and negotiating with materials suppliers.

"In some of our market segments we've been successful at getting price," said ITT Industries Inc. (ITT.N: Quote, Profile, Research, Stock Buzz) Chairman, President and Chief Executive Steven Loranger.

"We're going to see continued pressure on commodity prices, so we have to be more efficient in how we buy, and be more efficient in what we make."

Other firms said they have been seeking to replace copper with cheaper metals like aluminum, without compromising overall manufacturing quality.

"When you look at commodity prices, we've been successful offsetting that with productivity and selling price increases," said John Rice, a vice chairman at General Electric Co. (GE.N: Quote, Profile, Research, Stock Buzz) and CEO of the company's industrial unit.

"Productivity is destiny that you can control."

Commodity prices eased this week, but last week gold prices punched through $700 an ounce for the first time since 1980, copper hit a historic high, and aluminum marked a fresh 18-year peak. Other key materials like steel, titanium and zinc have also traded at their highest levels in years.

BLESSING AND CURSE

Rockwell Automation Inc. (ROK.N: Quote, Profile, Research, Stock Buzz) Chairman and Chief Executive Keith Nosbusch said his company has struggled with high steel and copper prices in its motor business, but areas such as its automation business that helps companies cut energy costs and raise productivity have benefited.

"On the other side of the equation, we have the opportunity to help our customers save money. So it creates revenue growth opportunities (for us)."  Continued...