Builders and Contractors Exchange
Weekly Bulletin: 01 Mar 2004
The Rising Price of Steel, Copper, and Aluminum: What You Need To Know
By: David Lannetti
A review of recent newspaper headlines reveals what virtually every construction contractor already knows-the price of steel, copper, and aluminum have risen remarkably. Although metals prices were at 20-year lows just a few years ago, high consumption in China, inflated raw material prices, higher import costs, and a weak dollar have caused them to rocket upward as supplies rapidly dwindle.
For example, the price for steel made from iron ore has more than doubled over the last year. Scrap, which was selling for $100-$120 a ton at the end of 2003, went to $210 in January 2004, and likely will increase another $50-$60 this month. Last year, China's steel demand rose 38 million tons, the equivalent of the annual steel usage in Mexico and Canada combined. Meanwhile, energy prices have remained elevated, making the energy-intensive process of making metals more expensive. To make matters worse, ocean freight rates have more than doubled over the past year and the dollar has been falling for months, making all imports-including metals-costlier. Some believe the industry could be facing its worst shortage since the 1970s.
Supply concerns are so acute that there are reports of hoarding these metals, compounding the problem. Nearly half of steel users said that at least one supplier had canceled an order in January 2004. According to one metals supplier, "Due to the existing environment, we cannot print pages as quickly as the [price] increases are taking effect." Unfortunately, experts say that the trend of escalating metals prices may not be over anytime soon.
When the price of construction materials fluctuates over the short term, construction contractors should be asking several questions. Will I be compensated for escalating material costs on my existing projects? Do my contracts include provisions for escalation of material prices? How are government contracts affected by such price escalations? What can I do to protect myself in such a volatile market? Over the next several weeks, this column will discuss relevant issues that will assist you in answering these questions. In an uncertain environment, the most powerful tool is knowledge. Stay tuned.
Questions?
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This article is meant to bring awareness to this topic and is not intended to be used as legal advice.