Demand Driven Inflation: Titanium and Carbon-Fiber

"Pat Hus, chief executive of Titus Cycles in Tempe, Ariz., says that whenever he hears that a supplier has carbon fiber in stock, he picks up the phone and buys it immediately, often paying up to three times what he paid a year ago. "If we don’t move that day, it’s gone," he says."

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Yes, you read that correctly. Manufacturers of products made of Carbon-Fiber are paying 300% higher prices than they were 12 months ago. Manufacturers of the strong lightweight material are catering more to their bigger customers, and jacking up the prices for the smaller ones.

The prime culprit? A combination of the weak dollar and high fuel prices. That’s been driving a replacement cycle in aircraft. The emphasis on fuel efficiency means lots of carbon fiber is beibng sucked up by the aerospace industry. Good for Boeing, not so good for "the makers of sailboats, lacrosse sticks, tennis rackets, jewelry and bone
screws — who are paying 25% more for raw materials"
than did not too long ago. They are passing along the costs to their consumers.

How much is being passed along? Consider:

-Trek Bicycle Corp., Cannondale Bicycle Corp., and Serotta Competition Bicycles, are considering 5% to 25% price increases.
-Seven Cycles raised prices 10% this year, and expects another rise for 2006-2007 models.
- Luis Leguia saw prices rise on their carbon fiber cellos 12%
-455 Deep Bore Golf Clubs raised prices 30% to their distributor, who passed along a 3% increase to consumers   
-Titan Pro Defense raised the costs of their LaCrosse sticks 9%

Granted, none of these items are essentials. (If they were  we would have to report the CPI data without them — as in CPI ex Food and Energy).

But they are similar to other manaufactured products that are facing the same choice with input costs associated with rising prices of lumber, steel, aluminum, energy, and petrochemicals: Pass along the increase, and risk losing some revenues, or eat the increase and see margins take a hit.

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Titanium and Carbon Fiber: What’s Going Up In Price

Wsj_20060731205615
Courtesy of WSJ
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Carbon Fiber maker Zoltek Companies says they "keep prices lower for
bigger customers by raising prices for smaller ones, such as bike and
golf-club makers, who constitute 15% of his company’s business. "We
really jack up the price" for smaller customers, he says. He’s passed
on more of the 60% to 100% increases to sporting-goods customers."

In an odd and indirect way, Trek is subsidizing Boeing.

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Source:
Why Bike Prices Are Shifting Higher
Strong Aircraft Orders Lift Cost Of Titanium, Other Materials;
9% More for Lacrosse Sticks

PAUL GLADER
WSJ, August 1, 2006; Page D1
http://online.wsj.com/article/SB115383740157116588.html

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