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Construction steel prices spike

INCREASES AS MUCH AS 50 PERCENT CREATE UNCERTAINTY FOR PROJECTS

SAN RAFAEL – Seagate Properties President and CEO Wick Polite is relieved that in late November he ordered most of the steel set to go into the large San Rafael Corporate Center office project in the face of historic increases in prices as high 50 percent so far this year.

As it is, the 600,000 pounds of steel in the 250,000-square-foot second phase of the San Rafael project, which started construction in February, likely will amount to $11 million out of the $100 million budgeted for the project. Seagate had the structural, reinforcing and other steel ordered so far in advance of needing it this June because of long backlogs at steel mills.

But when faced with a 7.5 cent-per-pound increase earlier this month for plate steel used in floor decking, Seagate decided to order it now for use later.

“The government is giving us a fish story on the CPI because of what’s happening with steel,” Mr. Polite said.

In the first quarter, the Consumer Price Index increased 3.1 percent from the fourth quarter, according to preliminary figures from the U.S. Bureau of Labor Statistics. The Producer Price Index for construction materials and components rose 7.9 percent in that time. The PPI for steel mill products rose 8.7 percent to 196.6 in March from 180.8 in December.

The typical mill price for wide-flange steel used for the skeleton of projects such as Seagate’s was 50 cents a pound at press time, up 28 percent from 39 cents per pound in December, according to John Cross, vice president of the American Institute for Steel Construction, which represents all U.S. structural-steel mills and many distributors and fabricators.

Royce Van Bebber, vice president of longtime Petaluma steel distributor Van Bebber Bros., said year-to-date steel price increases have been higher for bar stock (nearly 40 percent), pipe and tube (50 percent) and plate (almost 70 percent). Mills are quoting 60 to 70 cents a pound for plate steel now, after several price increases so far this year, and are telling him to expect to pay 80 cents in June.

“It’s never been in my history here that quotes I give four months ago I can’t stick to,” he said. “Most of my customer contractors have it in their contracts that when pricing does this they are not held responsible.”

That’s the new world of construction materials procurement not only for steel but also for cement, copper and other materials, according to Mr. Cross. The trend toward greater global demand than domestic supply for raw materials used in construction appeared sharply in 2004, which saw a 34 percent increase in the steel-mill PPI, the largest year-to-year spike on record.

Roger Moore, senior project manager for Codding Steel Frame Solutions, which assembles light-gauge steel panels in Rohnert Park for use in housing and commercial projects, said the company has tried to absorb some of the price increases when bidding on large multifamily housing projects around the Bay Area.

“Even with the price increases, we’re competitive with wood builders, despite lumber prices being way down, because it can take twice as much labor hours to build stick-frame in the field,” he said.

To help with supply issues that have stretched mill delivery times to nine to 16 months, Codding is installing machines to form studs from bulk-rolled steel.

Serendipitously, Seagate missed the first-quarter price increases largely because of the mill backlog plus needing to find an on-site inspector of recycled content for silver-level certification under the U.S. Green Building Council Leadership in Energy-Efficient Design rating system.

China is often fingered as the global gobbler of scrap material, but the largest global importer of steel is Turkey, which has become a major steel producer.

Project owners now must balance the risk of cost increases by working with specialty contractors such as fabricators to purchase and stockpile materials at the right time. The price increases so far this year prompted contractors on large projects to buy twice as much from Van Bebber than they normally would need at their stages of the project.

Worldwide demand for construction materials has put such a premium on scrap materials that thieves have been pilfering job sites for installed copper wire, and a junk sedan is now worth several hundred dollars just for the metal.

In fact, a prime driver for the recent steel price increases is what is known as No. 2 auto shred steel, which is sold in monthly brokered deals rather than traded as a commodity, according to Mr. Cross. The price has risen 88.1 percent from 14.8 cents a pound late last year to 27.8 cents at press time.

Mills are set to release new prices May 1. The scrap price is rumored to be increasing 18 percent at that time, but Mr. Cross has heard it could stay the same.