Steel Costs Begin to Level out, Supply + Demand Stabilizes 

In March 2018, when a large tariff increase—25%—on steel imports went into effect, alarm bells went off in the construction industry. A cost increase of this size impacts bottom lines, so everyone in the industry braced for a blow. The tension was high. The U.S. is the largest steel importer throughout the world (Trade.gov) and, when the new tariff began, the construction industry was growing faster than at any time since 2010, when recovery from the Great Recession began. Just when recovery was taking off, this new threat loomed.

Questions related to the new cost of steel and its available supply here in the U.S. surfaced. A cost increase was expected, but just how much of an increase and how long it would last remained to be determined. Construction superintendents and other industry professionals sought to keep projects moving ahead without delay caused by steel price hikes or shortages. Jobs still needed to be completed on time.

At the outset of the increased tariff, our domestic steel mills were not producing at the optimum output because, until the new tariff took effect, cheaper suppliers could be found internationally. According to Trade.gov, the top U.S. steel importers are (in order of import dollars) Canada, South Korea and Mexico. The increased tariffs were sure to have an impact on these and other steel import countries too.

Added to this shaky equation was the reality that domestic U.S. steel mills often purchase raw steel from international sources as well. Given all this, it was clear it would take time for U.S. steel companies to meet demand at a competitive price point. Supply was low and the demand for their product higher than in recent years. Steel manufacturing companies would need to find domestic raw steel suppliers, build working relationships with them and find creative solutions to meet increased demand at a price construction firms were willing and able to pay.

While this happened, construction firms scrutinized existing contracts for ways to mitigate their increased costs; potential solutions were floated, including using alternative materials—precast material, for example, in place of steel. Redesigning steel buildings when beneficial for the client by using an alternative, less expensive, building materials helped construction firms offset increases to a degree.

Then we began to see increased production within U.S. steel companies that had become more competitive in the domestic marketplace.

The Dodge Construction Outlook report indicates that the construction industry grew in 2018 and 2019. And while growth measured by the number of new projects is expected to decrease overall in 2020 due to skilled-labor shortages and remaining trade tensions, some market segments will see an increase.

The sharpest decline in new projects is likely to hit the electric utility and gas plants segment in 2020. However, the number of projects is expected to increase within the public works and institutional construction segments. For many of us, that will likely include more education buildings and healthcare facilities.

Article submitted by McCree General Contractor and Architects.