MARKETPLACE

High Steel Prices May Limit Opportunities For Construction Projects
PITTSBURGH - The pain of rising steel product prices could spark a shift to cheaper materials in construction projects, according to some sources. And while steelmakers have seen little sign thus far of projects being canceled, they acknowledge that if prices stay at elevated levels in the long term they might face that prospect.

It's not just the fact that steel costs are becoming painful, said Tom Valvo, president of Aegis Metal Framing LLC, St. Louis, it's that customers who might be willing to build with steel are being forced to go with other, less-expensive materials.

"The issue we are seeing is that these (steel) prices are opening the door to alternate materials," Valvo said. His company specializes in the use of light-gauge cold-finished galvanized steel to build roof and wall framing. "A lot more people are looking at building with wood. Lumber is cheaper now than it's been in a long time. They are seeing fairly substantial savings by re-engineering some of these buildings with wood, and that is translating into tons of lost business in steel."

The Steel Framing Alliance (SFA), a Washington-based organization set up to promote the use of steel in residential and light commercial construction, faces the issue on a daily basis.

SFA president Larry Williams acknowledges it's a battle that was difficult in the beginning and made tougher by rising steel prices. "We're operating in an environment where steel prices are much higher than they ever have been while wood now is at the same price that it was, I'd say, back in 1990 or '91," Williams said. "The rising price of steel has significantly impacted our ability to compete."

There are few indications that steel prices are going to drop dramatically any time soon. The combination of high raw material costs, which steelmakers are passing on to their steel-buying customers, along with a weak U.S. dollar and high freight rates that discourage imports and encourage steel exports, means that high steel prices likely will last until at least the start of next year.

"Raw materials have increased, as have energy and transportation costs," said Jim Stavis, vice president and chief financial officer of Paragon Steel, a Long Beach, Calif.-based steel distributor. "And now we have a weakened dollar that is keeping cheap imports away from our markets, thus creating short supply and increased prices. As a result, every month we seem to eclipse the old highest price we have ever seen for steel, stainless and aluminum products. And similar to the gas situation, there is little chance that there will be a reversal in prices. Fifty-cent (per-pound, or $1,000-a-ton) steel is here to stay."

The high prices haven't greatly affected non-residential construction yet, although steelmakers see potential storm clouds brewing.

Source: American Metal Market, April 28, 2008