Denali Intelligence, a market research firm for sourcing professionals, released its latest (Q4) T&D Market Index. The index is based on detailed analysis of 11 critical-spend categories that represent core purchases for most transmission and distribution (T&D) organizations, including:
- Line material
- Meters
- Steel structures
- Street lighting
- Switchgear
- Transformers
- Wire and cable
- Wood products
- Construction services (underground and overhead)
- Engineering services
- Vegetation management
Because most of these categories have experienced significant volatility during the past two to three years, the index is based on a weighted composite developed from an analysis of more than 30 utility T&D spend prożles. Denali analyzes the key cost drivers?commodities such as steel and copper, labor and other cost factors?to develop the historical and forecasted price trends associated with this index.
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The index offers T&D organizations a snapshot to explain budget variances for purchased materials and services during the past 12 months and gives projections for the coming year.
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Reflecting the broad economic slowdown, Denali Intelligence's T&D Market Index decreased 7.7 percent in the fourth quarter of 2008 but ended up 8.2 percent on the year. Leading the downward pull were underlying commodities, including a 51 percent decrease in crude oil, and sharp decreases across all base metals. Diesel fuel prices fell 27 percent in Q4 but remained up 34 percent for the year. Metals and energy prices retreated on eroding demand, both domestic and international. A slow U.S. economy and production cuts in China erased 2008 first-half gains in metal markets.
The overall U.S. unemployment rate reached 7.2 percent during December, up markedly from 5.5 percent a year ago. From December 2007 to December 2008, the unemployment rate increased 1.7 percent, equating to an additional 3.2 million unemployed U.S. workers.
As the financial crisis rapidly unfolded in early October, fear of a long, harsh recession sped demand and price drops, and the new market reality increased corporate focus around cost restraint. During December, the ISM Purchasing Managers Index (PMI) hit the lowest level ever recorded.
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Looking to 2009, Denali Intelligence expects the T&D Market Index to reflect an overall flattening or decrease of materials prices and a slight rise in services prices. This is due to potential increased demand for heavy construction loaded labor, which depends on projects included in the government's stimulus package.
Market Forecast
- Recessionary forces are expected to intensify, with U.S. economic forecasts predicting recovery to begin mid- to late 2010 at the earliest.
- The Energy Information Administration (EIA) expects 2009 global crude oil demand to contract 0.6 percent after dropping 0.3 percent last year.
- The U.S. unemployment rate is forecasted to increase to 7.5 to 8.5 percent in 2009.
- As a result of the financial crisis, the Federal Reserve cut the federal funds rate to 0 to 0.25 percent on Dec. 16, 2008. This rate is predicted to continue through 2009, with the government expected to take additional measures such as the purchase of Treasury bills.
- Reflective of recessionary and slowing T&D project loads, the Denali Intelligence T&D Market Index expects a 4 percent decrease in 2009.
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Denali Intelligence (www.denaliintelligence.com) provides subscription-based, category-specific market intelligence designed for utilities sourcing professionals. While the free, abbreviated version of the T&D Market Index offers valuable topline insight regarding 12-month T&D price trends and forecasts, Denali Intelligence subscribers receive detailed trends and forecasts for each of the 11 critical-spend categories, as well as analysis of supply market risks and trends specific to the T&D organization.
Call them for more information on the full version of Denali Intelligence's T&D Market Index or other reports at 888-824-8866, or e-mail info@denaliintelligence.com.