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Managing Steel Price Increases
Posted by Geoff Weisenberger on June 30, 2008 at 3:40 PM.

Increasing global demand for both structural steel and steel scrap has triggered significant domestic increases in the producer price of structural steel during 2008. This year the mill price for wide-flange structural steel has increased 28% to just over $1,000 per ton. Other structural materials such as HSS and plate have experienced increases into the $1,100 to $1,200 per ton range. This increase is typical of the price volatility that has been experienced by all construction materials since early 2004; global demand peaks have triggered price volatility and availability concerns for cement, gypsum, copper, plastics, and lumber products during this period.

 

The current increase in the cost of structural steel products can be traced to an expanding global marketplace combined with increased competition for the purchase of steel scrap, iron, coke, and metallurgical additives that are used in the production of various types of steel. Scrap index prices have increased from $290 per ton in December of 2007 to a current level of $555 per ton. The recycled content of wide-flange structural steel is nearly 90%, which equates this $265 per ton increase directly to the $220 increase in the per ton price of structural steel. At the same time domestic structural steel, as a result of the weakened U.S. dollar, remains $20 to $40 per ton lower than the global price, which discourages imports.

 

At the present time, structural steel remains readily available in the U.S. market, with service centers holding over three months of inventory available for immediate delivery. Direct mill shipments of wide-flange shapes continue in the range of 12 to 14 weeks, while HSS is available from producers in four to six weeks.

 

The transition from a domestically driven market for construction materials to a global market requires significant changes in how construction projects are managed:

 

  • Early involvement of specialty contractors, including structural steel fabricators, during project design as a means of optimizing the material supply chain, as well as the use of materials on the project.
  • Engagement of product suppliers (mills and service centers) in early dialogue regarding pricing levels, material reservations, and the availability of price-lock mechanisms.
  • Clear definition within bid solicitations of which party will be expected to hold the risk for material price fluctuations, with the understanding that the assumption of that risk requires compensation.
  • On some projects it may be acceptable to incorporate an escalation clause into the contract. Typical contractual language is available upon request from the AISC Steel Solutions Center (solutions@aisc.org).
  • Rapid acceptance of bids and early authorization of material acquisition, with the understanding that the specialty contractor will be reimbursed for both the material and storage charges when they are incurred.

 

For more information contact John Cross, AISC’s vice president, at cross@aisc.org.


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