Soaring steel prices eat into company profits, drive up building costs — and possibly what consumers pay
Cost of steel has doubled in 6 months, with auto, appliance industries just some of the big users
The president of RJ Steel and Copper Co. in Windsor, Ont., is having a hard time living up to the quotes he has given for railing installations and other jobs, due to the rapidly increasing price of steel.
"It's hard to quote a job when you can only guarantee a job for three or four days," said Ryan Jordan.
Prices for steel have doubled in the past six months, from $700 US per tonne to about $1,300, according to economist Peter Warrian, a professor at the University of Toronto's Munk School of Global Affairs and Public Policy.
China is producing 59 per cent of the world's steel due to COVID-19 shutdowns of steel producers, and the country is using much of it for a new infrastructure program, said Warrian, a steel industry expert who's former research director of the United Steelworkers of America.
As well, he said, the U.S. is spending $3 trillion on its own infrastructure program.
"Rebar has gone up the most," said Warrian, adding that sheet metal prices have not risen as much.
"It's not all the stuff that's currently being built. A lot of it is speculation."
John DeVries, president and general manager of the Ottawa Construction Association, said Walmart and Amazon alone are planning $100 billion worth of new distribution centres over the next two years, accounting for 65 per cent of the construction steel that will be used in the U.S.
"Throw in the automotive sector, the appliance manufacturers, you get the picture — there is everyone demanding steel," said DeVries.
Automotive-parts manufacturers use steel bought by their customers, as long as they buy enough, so their costs are fixed.
But Flavio Volpe, president of the Automotive Parts Manufacturers Association, said the customer — usually automakers — then go after the parts maker to squeeze them for savings elsewhere.
"If you're selling a sedan or an SUV right now, the last thing you're going to do in the middle of a pandemic is raise the price," said Volpe.
He said that as the price of steel soars, auto manufacturers also may look to using different materials, which could result in the consumer paying more.
"Sometimes they're stronger, sometimes they last longer, but if you end up finding a more exotic material, or composites or aluminum, it makes the cars more expensive," he said.
Price bids get outdated quickly
Kevin Kelly, president of Shurlok Products, a stamping plant that also produces other automotive products, said companies are having to go back to auto companies for more money or end up making no profit.
Everything is extremely tight with our customer. We quote what our material prices are on the day. The only thing we can do is try to pass that on to the customer. - Kevin Kelly, president of Shurlok Products
"Everything is extremely tight with our customer. We quote what our material prices are on the day. The only thing we can do is try to pass that on to the customer," said Kelly, adding the supply is also getting scarce.
"Now you're ordering six to eight months out in advance, or in six months you won't have material in your flow."
DeVries said it's also getting difficult for large construction companies to live up to the prices they've quoted for jobs. Prices rise so quickly that after 60 to 90 days, any bids made on a project are outdated.
He pointed to a new $100-million police facility in Ottawa.
"They had their budget based on a year ago. The project had to get cancelled. They were way over budget."
He expects another $100 per tonne will be added to the price in the next couple of months and an additional $200 per tonne in September. He doesn't see an end to the increases until sometime in the first quarter of next year.
"It hurts. It hurts a lot. Anybody who hasn't gotten onto the buy programs with their customers, they're going to hurt in the long run," said Kelly, adding the only way to slow the inflation is to increase supply
"They have to open up the markets to offshore."
U.S. trade war with China blamed
DeVries said Donald Trump's trade war on steel with China, when he was U.S. president, also resulted in a loss of supply to North America that domestic producers could not compensate for.
Brooks Dean, president of Dean Construction in LaSalle near Windsor, estimated people wanting to get breakwall steel installed can expect a 15 to 20 per cent increase over last year.
"Anywhere from 65 cents to 85 cents a pound more," said Dean.
The Bridging North America consortium, which is building the Gordie Howe bridge between Windsor and Detroit, reported the price increases won't be passed onto the federal government and the bridge construction is on time.