Posted on April 18, 2018 by Lynn Chesnut
Recent news reports about tariffs on imported steel and aluminum have resonated throughout the economy and caused a good bit of uncertainty for many businesses – especially in the construction industry. That’s because tariffs, essentially taxes added to imported products, get passed on to individuals and companies who buy those products, thus raising prices. What can those of us involved with metal buildings do? First, understand where this is coming from and then take appropriate action to protect against pricing volatility.
In 2017 the U.S. Commerce Department began an inquiry into imported steel and aluminum, invoking Section 232 of the Trade Expansion Act of 1962 (19 U.S.C. §1862). Under this law, the Secretary of Commerce is authorized to conduct comprehensive investigations to determine the effects of imports of any product based on protecting the national security of the United States. In February of 2018, the Department of Commerce issued its report to the president of the United States, finding that the quantities and circumstances of steel and aluminum imports “threaten to impair the national security,” as defined by Section 232. The suggested concern seems to be that cheaper imported steel and aluminum are threatening the survival of U.S. steel mills, thus reducing the number of U.S. suppliers that can service the Department of Defense for tanks, equipment, etc. The report went on to include a range of recommendations to limit the quantity of steel and aluminum imported into the United States and to impose specific tariffs ranging from 24 percent to 53 percent of the price of imported steel, and 7 percent to 24 percent for imported aluminum – all depending on the country of origin where the metals come from.
Using this report as a basis, the president announced in March a 25 percent tariff on steel and 10 percent on all aluminum coming into the United States. Subsequently, certain countries were identified as eligible to be exempt from these additional charges based on a variety of criteria. Accordingly, the Department of Commerce announced a “Steel and Aluminum Tariff Exclusion Process” with regulations and procedures for overseas companies to follow in requesting relief from the the U.S. tariffs being imposed on their goods. Which countries and which products are ultimately exempt is still to be seen, but strong trading partners such as Canada and Mexico seem assured of an exemption while others, such as China, are uncertain at best.
What the construction industry can’t control – the market.
The construction industry in general, and specific trades in particular such as metal building manufacturers and installers, are certainly impacted by changes or swings in the price of steel and aluminum. The mills that provide the raw and finished products for structural members, sheet goods, plate, etc. set their prices based on market conditions in order to remain profitable and viable. When cheaper imported options are available, the U.S. mills have felt the pressure to lower their prices just to remain competitive. With tariffs in place, they are free to raise their prices and still be competitive since, presumably, everyone is on a level playing field. However, the range of product types, the pending exemption of certain countries and not others, and the ensuing price volatility that is fully anticipated as a certainty, are all general market forces out of the control of any single construction company.
What the construction industry can control – project time schedules and price locks.
Metal building manufacturers have ongoing relationships with steel and aluminum mills, and base the pricing of their products and packages on the prices they can negotiate with those mills. The pricing for a specific building package occurs when either a fabrication quotation or an approval quotation is requested. For a fabrication quotation, the manufacturer can typically hold a price quote for two weeks until it is accepted and confirmed by the customer. Then they will work through the fabrication and delivery process over the following 12 weeks. For an approval quotation, the quote is still good for two weeks, but the customer is allowed an additional two weeks for review and return of drawings within the 12 week fabrication and delivery time-frame. Given the current market volatility, it is very difficult for metal building manufacturers to lock in pricing for any more than this typical 14 weeks process for either type of order. Recognizing this and working to expedite the review and approval process can help assure that prices are locked in and controlled. For long-term projects and public projects that go beyond 14 weeks, some special attention, phasing, or other considerations will be needed to maintain a budget.
Potential Pricing Implications
Every project is different, of course, and can have a different mix of metal building parts and components, but it is fair to say that the impact of metal price increases will directly affect total building package costs, which manufacturers must pass along to purchasers. However, since the raw products from a mill don’t account for the other value-added aspects that a manufacturer brings to the process, a 25 percent increase in raw steel products might mean a 10, 15, or 20 percent increase in the total finished package depending on the mix of products specified and included. Still, a $1 million dollar metal building package could jump to $1.1 million to $1.2 million or possibly more, all without a lot of warning.
Overall, the best way for metal building installers and building owners to stay on top of the price volatility is to communicate and work together with metal building manufacturers. By setting realistic expectations of the timeframe and turn around times needed for a project, installers, owners, and manufacturers can all be better protected from pricing changes. By getting the fabrication drawings approved as quickly as possible and sticking to agreed-upon timeframes, pricing is more likely to be assured and not subject to changes due to other market fluctuations.
To find out how to better work with metal building manufacturers so they can better work with you during this volatile period, contact your local Ceco representative.
Recent news reports about tariffs on imported steel and aluminum have resonated throughout the economy and caused a good bit of uncertainty for many businesses – especially in the construction industry. That’s because tariffs, essentially taxes added to imported products, get passed on to individuals…