June 26, 2008

Economics

Steel prices continue to soar, with no relief in sight

IAN HARVEY

correspondent

The hard truth about soaring steel prices is that there’s no stress relief in sight.

Insatiable demand from Asia for steel and other metal commodities has hit local markets in the form of daily price fluctuations with an unyielding trend upwards.

While there are no large scale shortages yet, some items are in short supply and fabricators are struggling to synchronize their buys with rolling schedules, which are also in flux.

Pricing for structural steel and beams was up 28.5 per cent year over year by March and continues to increase while reinforcing bar was up 19.2 per cent.

Some market analysts, including web-based John Packard, say the recent fluctuations in prices and steel industry survey responses suggest demand is set to fall — taking prices with it.

In the meantime, it’s a daily battle for those at the front line of construction to bid on jobs, knowing that if they get a number wrong it could wipe out their profit margin.

“The market is so competitive and margins are razor tight,” says Eric Miszczuk, vice-president at Fabricators Cooksville Steel with facilities in Mississauga and Kitchener. “I think 2008 is a transition year and that in 2009 it will be interesting to see whether there’s an over capacity of fabricators and a consolidation in the marketplace.”

He said price guarantees on bids good for 30, 45, 60 days are a “long gone thing of the past. Prices are good for next week, that’s it,” he says.

Availability is also an emerging issue with shortages prompting fabricators to call structural engineers to suggest substitution of specific pieces if the originally specified item can’t be immediately sourced.

“With the rolling schedules you end up asking, what’s important, price or schedule?” he says, noting many opt to keep on schedule and pay more.

“I just got a call yesterday from a contractor wanting to change a piece,” says Dave Tipler, a board member of the Consulting Engineers of Ontario and a structural engineer at Bannerjee and Associates. “For us we’re carrying on with the designs as normal but we are running into the odd problem because the beams we may have specified we can’t get or have to wait too long.”

Contractors are hurting, he says, because many are being held to prices locked in before things started to jump.

“My concern is that at some point the developers will say they can’t make the numbers work anymore because there’s only so much they can rent a building for and the costs are going up to build it and then we could be into a recession,” says Tipler.

So far, says John G. Brasil, president and COO of Etobicoke Iron Works, the supply side of steel has held up, adding rolling schedules are just “another fact of life, not really news anymore.”

However, he says, daily pricing is an issue: “We can only hold a week to 10 days. Developers used to come back to us after six months to see if they could get a better price that’s just not happening anymore.”

While EIW is buying ahead, he says, the heart of the issue is “these crazy prices. In the U.S. they’re paying $700 a tonne for scrap steel. Scrap!”

The analysts’ consensus is high demand and higher prices overseas have cut imports into North America, which in turn gives domestic steel makers more power to raise their own prices with steel now firmly entrenched as a globally priced commodity.

There is some indication, says analysts, that prices will peak later this year, but unless demand in Asia slows considerably, there are no guarantees prices will settle back down, any more than crude oil prices, for example.

Garry Mineilly, executive vice president at Brampton’s Dymin Steel, isn’t sure the wild ride is over. “There’s no end in sight, as long as Europe and those other markets are hot,” he says.

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