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April 2004

Steel Prices Have Contractors Searching for Alternatives

Herndon, VA— Sharp increases in steel prices are affecting architects, contractors, and builders in North America who are looking for solutions that involve using less steel. Global steel and scrap prices have skyrocketed in recent weeks and market analysts point to extraordinary demand and consumption of steel by China as reasons for the increased prices.

A leading supplier of steel market information, MEPS International reports hikes in price between February 2003 and February 2004 as high as 65.5 percent. Rebar, which averaged $249 per ton a year ago is up to $412 per ton. Medium sections and steel beams which sold last year for $336 per ton now sell for $491 per ton. Wire mesh, which averaged $257 per ton last year is now at $403 per ton.

On the scrap metal side of the industry, Tom Danjczek, president of the Steel Manufacturers Association in Washing-ton D.C. said, “An emergency steel scrap coalition has been formed to study what has caused scrap prices to go up and what the impact will be on our customers.” The coalition points to purchases made by China and South Korea that account for half of all US exports. The coalition warns that construction, a mainstay of the U.S. economy faces direct harm from sharply increased steel scrap prices and that construction companies of all sizes will be impacted by the crisis.

Bob Klee, Director of Technical Services and Architectural Consulting for Clayton Block Co., Inc. in New Jersey commented, “We’ve been talking to architects about using load-bearing concrete masonry because of the shortages expected and the increasing cost of steel. In our discussions with the architects, we’ve found this steel price hike is wreaking havoc with their business... they are getting requests for changes in all sorts of projects due to the increased costs. Contractors are caught in the middle on this issue. We’re advising the architects we talk with to put up high strength masonry walls and spread the columns out. That is a solution that would considerably reduce the quantity of steel required and lower the costs.”

A report issued last month by architectural firm Davis Langdon Adams addresses the high demand and prices for steel products and warns of the impact on project schedules. The report says, “As demand increases and supplies shrink, some projects have faced delays in receiving needed materials. This can have a significant impact not only on budget, but also on the ability for the projects to be completed in a timely and efficient fashion.”

From a contractor’s point of view, Chris Payne, an estimator for a major east coast contracting company said, “The huge increases in steel prices are affecting everything and the situation is in such flux that steel suppliers won’t guarantee prices for more than a week. We’re also having a problem getting architects to agree to loosen some of their specifications. Some of the jobs we’re bidding are scheduled in 2005, which makes projecting real costs impossible.”

Brian Buehner from Buehner Block Company, Inc. in Salt Lake City reports talking with designers in his market who are looking for cost-cutting solutions. Buehner says, “Architects are worried about getting projects moving and constructed before being hit by another round of hikes in steel prices. Architects are in a panic mode.”

The price increases and expectations of even greater prices have contractors scrambling. Robert Baxter, who handles construction administration for the Mosley Group in Richmond, an architectural firm with a heavy focus on building schools said, “Contractors are scrambling to get any submittals that require steel in so they can lock down their prices before the increases. Everybody is in a state of panic about it. The word from suppliers is that a price increase is imminent.”

Dave Jollay, head of Jollay Masonry Contractors in Atlanta reports the steel price hikes are beginning to impact the masonry industry but said, “I do not think any of us are aware yet of how much the impact will be. Certainly with the price hikes on our wire-tie and reinforcing components, stainless steel counter flashings, and reinforcing bar for structural design we will see an increase to our in-place wall costs. The assumption is that our competitors will be more negatively impacted, and while that may be true you have to keep things in their proper perspective. For example, a steel stud wall system will certainly be impacted, but the raw material cost of the steel is probably 25-30 per cent of the total building cost. So, the overall price per square foot is not going to double. In fact their industry will do all that they can to minimize the price spike and the resulting loss of market share.”

Mark B. Hogan, President of the National Concrete Masonry Association, said “Although there may be some increases in the cost of reinforcing steel used in reinforced concrete masonry wall systems, relative to competitive systems, concrete masonry wall systems are more cost competitive as a result of steel price increases and remain an excellent product of choice for designers and builders, even when the economic situation is more stable for steel.”


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