Exclusive feature: The T&D Market Index compiled by Denali Intelligence — 4th quarter 2008

The following is an exclusive look at an abbreviated version of the fourth quarter (2008) T&D Market Index researched and compiled by Denali Intelligence.

About the index

Denali Intelligence’s T&D Market Index is based on analysis of 11 critical spend categories that represent core purchases for most T&D organizations, including:

“- Line Material
“- Meters
“- Steel Structures
“- Street Lighting
“- Switchgear
“- Transformers
“- Wire & Cable
“- Wood Products
“- Construction Services (Underground & Overhead)
“- Engineering Services
“- Vegetation Management

Since most of these categories have seen significant volatility over 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 profiles. 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 the index.

The index provides T&D organizations a snapshot of what has happened to their budget for purchased materials and services over the past 12 months (to explain budget variances) and gives projections for the coming year.

The 4th quarter index: A snapshot

Reflecting the broad economic slowdown, Denali Intelligence’s T&D Market Index (see Fig. 1 above) 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 (see Fig. 2 below). Diesel fuel prices fell 27 percent in the fourth quarter 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 the month of December, up markedly from 5.5 percent a year ago. Since December 2007 the unemployment rate has increased by 1.7 percent, which equates to an additional 3.2 million unemployed workers in the U.S.

As the financial crisis rapidly unfolded in early October, fear of a long and harsh recession sped demand and price drops, and the new market reality has increased corporate focus around cost restraint. During December, the ISM Purchasing Managers Index (PMI) hit the lowest level ever recorded.

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 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 between 7.5 and 8.5 percent in 2009.

* As a result of the financial crisis, the Federal Reserve cut the federal funds rate to 0 – 0.25 percent on December 16, 2008. This rate is predicted to continue through 2009, with the government expected to take additional measures, such as the purchase of T-bills.

* Reflective of recessionary and slowing T&D project loads, the Denali Intelligence T&D Market Index expects a 4 percent decrease in 2009.

The full version of this report can be obtained from Denali Intelligence.

Denali Intelligence (www.denaliintelligence.com/) offers subscription-based market intelligence designed specifically for sourcing professionals. Their category-specific market reports help clients develop high-impact sourcing strategies, prepare successful negotiations, and understand important market trends affecting their spend categories. Contact them for more information on the full version of Denali Intelligence’s T&D Market Index, or other reports at 888.824.8866 or info@denaliintelligence.com.

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