August 26, 2008: According to a July survey of industrial bearings distributors conducted by Longbow Research analyst Eli Lustgarten, demand rebounded during the July/August time frame, but the outlook is far less certain with implications for two large players, Timken and Kaydon. 

“The increase in demand we are seeing," said Lustgarten, “may signal an end to the inventory liquidation  that appears to have taken place during the second quarter of 2008.”  According to  Lustgarten’s survey, the number of respondents reporting higher demand was up in July-August at 27% (vs. 15% in May-June, 15% in April-May, and 17% in February-March) while the number of distributors reporting demand as flat was roughly unchanged at 55% (vs. 58% in May-June, 44% in April-May).  

Lustgarten said that his survey revealed strengthening pricing, with 20% of respondents reporting price increases of 10% or more, the highest level seen during the 28 months the survey has been conducted.  “Distributors identified rising transportation and raw material costs such as steel and petroleum as key drivers for the increases.”  

Lustgarten said that despite a strong pricing environment, “Outlook for the coming 6-12 months was significantly more mixed this month, with notably fewer positive responses and a greater number of neutral responses, suggesting a lack of visibility for the next 6-12 months.”  He said that positive responses and expectations declined to 24% (vs. 41% in June, and 50% April-May) while neutral responses increased to 69% (vs. 43% in June, 38% in April-May).  

Lustgarten said that in light of the survey result, he feels that Timken Co. is well positioned for the second half of 2008, while Kaydon Corp.  faces several issues including softening in Europe, cost pressures, and tax credits for wind power which remain in political gridlock.