With steel prices climbing through the girders, local construction companies and manufacturers are scrambling to find creative ways to control costs.
Bryan Goodman, vice president of manufacturing operations at Vancouver-based Columbia Machine Inc., said steel prices rose 35 percent to 40 percent between January and May and expects them to continue to climb 25 percent to 30 percent in the next two months.
Industry website Steel Business Briefing reported that certain types of domestic steel rose from $550 per ton to $1,125 per ton this year alone – compared to $210 per ton in 2001.
In the process of manufacturing equipment for the concrete products and palletizing industries, Columbia Machine uses vast amounts of various types of steel, including A36 mild steel and carbon steel. In 2007, the company bought more than 4,000 tons of steel.
Long-term agreements are one way manufacturers protect against price swings for purchased components, Goodman said. But even so, Columbia Machine recently instituted a 4 percent price increase, effective June 1, to combat the steeply climbing price of steel.
Pat Dolan, president and owner of fellow Vancouver manufacturer Pacific Machine and Development, said “you have to be really careful” when bidding on jobs.
“You bid a job on Friday, land the bid, and on Monday when you go to order parts, it’s more expensive,” Dolan said.
Vancouver-based Western Construction experienced this very problem when it bid on the Salmon Creek Fred Meyer remodel earlier this spring.
Gary Young, project manager for Western Construction, said in the 20 days between bidding and contract signing, the $70,000 worth of steel for the project had shot up $10,000. Luckily, Western Construction submitted a change order to Fred Meyer the very day the contract was signed and the retailer approved it.
Many contractors are shortening the time for which a bid is good from 30 days to as little as 10 days, Young said. Another trend, said Western Construction President Ron Edwards, is that contractors have to plan and commit dollars earlier, as steel distributors are not keeping inventories at high levels.
“The contractor’s greatest challenge is to control steel cost while getting it to the job site on time,” Edwards said.
One way Columbia Machine controls steel costs is buying some types directly from the manufacturer, bypassing the middleman. For example, Goodman said, the company buys carbon steel flat bar on a bi-monthly basis from a source in the United Kingdom and buys entire mill runs of carbon steel plate.
Jim Villarreal, CEO of Eastside Steel, a steel distributor with a satellite office in Vancouver and one of Columbia Machine’s suppliers, said more people are calling for quotes before ordering steel and that some clients, suffering from sticker shock, think they are being gouged.
“But they find out the price is the same everywhere,” he said.
Walk-in customers – what Villarreal referred to as “backyard welders” – are also down.
What’s behind the cost?
Those familiar with the steel industry attribute rising steel prices to several market drivers. These include the increased cost of raw materials such as coal and iron ore, a burgeoning demand for steel in China, India and other developing nations, the weakening of the U.S. dollar and a shortage of domestically produced steel.
Edwards also indicated energy costs affect steel significantly.
“Steel is impacted by energy from start to finish,” he said. “Manufacturing, handling, inventory, trucking, fabrication – fuel affects each step.”
A volatile market
Steel prices are often volatile, said Villarreal, who has been in the steel business for 38 years. He recalls four years ago when steel prices doubled in six months then eventually plateaued.
Goodman has heard steel prices will level out in September and remain stable for six to nine months. Typically, high prices indicate a shortage, but he said that for Columbia Machine, “availability hasn’t been a problem – yet.”
But Young said Western Construction has seen shortages of certain steel-based products, such as 18-inch C-channels (a type of structural beam). However, he has been able to procure an acceptable substitute material.
“Steel is the first thing we use on a project,” he said. “We couldn’t afford to wait.”
Scrap steel prices also have risen. Goodman said that at the first of the year, grade one scrap steel commanded $350 per ton. In May, it rose to $575 per ton and June saw another hike to $680 per ton – a 94 percent jump from January.
“The market for scrap steel has increased significantly,” Goodman said.
Western Construction is sensitive to this market and “saves every scrap of steel,” Edwards said. During the remodel, 95 percent of removed steel product is recycled, Young said.
Columbia Machine also recycles any scrap left over from projects.