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Scripps Howard News Service (Sacramento Bee)
February 23, 2005
Soaring Steel Prices Hurting Builders
By Jon Ortiz
Planners at the University of California-Davis tore up designs for a 10,000-seat stadium and
reconsidered.
Honda Motor Co. Ltd. announced a price increase on most automobile lines for the first time in a
decade.
Cooper Tire & Rubber Co. reported that operating profit fell $10 million in the fourth quarter.
The common thread: Skyrocketing steel prices that are sending a shock wave through commercial
construction and other steel-related industries.
West Coast steel contracts have risen 30 percent to 40 percent in the past year, and regional spot
market prices for steel have soared nearly 90 percent.
"Steel has been the biggest thing affecting construction costs," said Aaron Alhady, director of
business development for McCarthy Building Companies Inc.'s Northern Pacific Division. "It has
affected the overall cost of projects 20 to 25 percent."
Steel increases have affected costs for everything from steel bars used to reinforce concrete to
plumbing pipe and screws.
"Those costs get passed on," Alhady said. "It's a very touchy subject in the industry. So you do
what you can to predict the costs. The challenge is trying to forecast those costs appropriately
because you're making decisions about the programs today on what materials will cost down the
road. We're talking about hundreds of thousands or millions of dollars."
Experts say Chinese steel consumption is a big reason for steel's white-hot prices. China's
stampede to expand manufacturing and build infrastructure has created a huge demand for steel,
in turn boosting demand and tightening global supplies of scrap iron, iron ore, pig iron and coking
coal used to make steel.
Nobody knows for sure how much steel is being consumed or produced in China.
Steel manufacturers and steel buyers use production and consumption data to set prices and adapt
to shifts in demand. However, Chinese industry is in such a dynamic state that it is difficult to
tally its steel production and use, said George Wilson, chief projects estimator for McCree Inc., a
large architectural firm in Orlando, Fla.
Most experts figure that China last year consumed 250 million metric tons — one-quarter of the
world's annual steel output — and produced about 210 million metric tons. By comparison, U.S.
steel consumption was 132 million metric tons in 2004. Imports made up about 27 percent of that
total.
To feed their steel mills, Chinese producers have been scouring the world for scrap steel. Scrap
prices in the United States, the world's largest supplier, have risen by as much as 80 percent.
Prices for iron ore, another key ingredient in steel making, are up 20 percent on world markets.
Add in the dollar's weak exchange rate and growing domestic demand for steel fueled by a
rebounding U.S. economy and you get steel prices that are at 24-year highs, said LPA Sacramento
Inc. chief architect Robert Chase.
"It used to be that we would look at a building and ask, 'Steel or concrete?' " Chase said. "But
right now, steel is so expensive we think concrete first."
Steel prices prompted University of California-Davis planners to commission a redesign of a $21
million stadium the school plans to open late next year.
The original plan called for a 10,000-seat outdoor stadium with a concourse. The new version,
drawn by San Francisco firm Ellerbe Becket, is a bowl sunk 16 feet below ground level.
"We revised the design to incorporate all 10,000 seats into the bowl area," said university project
manager Jill Tomczyk. "(That) eliminated the use of steel for the elevated structure" and
"eliminated a variable that could have a significant cost impact in our bids."
While many construction companies are locked in to long-term contracts with investors and have
absorbed the price spikes as the cost of doing business, other industries are passing the cost on to
consumers.
Japan's Honda Motors Corp. Ltd. announced Monday that prices of most Honda and Acura cars
will be an average $150 higher, the company's first sweeping price hike in 11 years. Honda cited
rising costs for steel and poor currency exchange rates as reasons for its decision.
(Distributed by Scripps Howard News Service, www.shns.com.)
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