U.S. manufacturers see some cost pressures easing

By Nick Zieminski

NEW YORK (Reuters) - U.S. manufacturers expect some relief from certain raw materials prices, but don't anticipate across-the-board declines, and the ability to pass on costs remains a sticking point.

For large consumers of commodities, lower prices could mean a bit less pressure on profit margins this year, executives said this week at the Reuters Manufacturing Summit in New York.

Diversified manufacturer Ingersoll-Rand Co. Ltd. (IR.N: Quote, Profile, Research, Stock Buzz), which makes security and cooling systems and machines used in construction, expects to pay more for raw materials this year than in 2006.

But the pace of the increase may not be as fast as previously expected, said the company's CEO, Herb Henkel.

Ingersoll is paying less than $3 per pound for copper -- used in electrical coils and locks -- compared with $3.30 to $3.40 per pound in the latter half of 2006. But prices of nickel and zinc, used in steel, remain high, Henkel said.

Prices for raw materials have soared in recent years, driven by global economic growth including a boom in China.

China's consumption of steel, copper, plastics and other goods used in making products or building infrastructure has driven up costs for manufacturers worldwide, while driving up profits for the companies that pump, cut or dig up the raw materials.

Ingersoll expects its raw materials bill will rise $30 million to $50 million over last year, which is about $20 million less than it estimated in January because of the drop in copper prices.

With demand weak for some of its products tied to the slumping U.S. housing market, Ingersoll's ability to raise prices is curtailed.

"Pricing for this year is going be tougher to realize than last year in those markets that are a little softer," Henkel said, adding the company was looking in part to productivity improvements to offset materials costs.

PEAK OF THE CYCLE

Kennametal Inc. (KMT.N: Quote, Profile, Research, Stock Buzz), a maker of industrial tools and advanced materials, has seen prices for its main material, tungsten, almost triple over the past two years.

China, the world's top tungsten producer, has seen a shortage, but as more mines come online, a drop in tungsten prices could spell relief for Kennametal.

"We believe that we are at the peak of the cycle," CEO Carlos Cardoso said.

United Technologies Corp.'s (UTX.N: Quote, Profile, Research, Stock Buzz) George David agreed.  Continued...