Construction industry hit with huge steel price rise

A record high price rise has been imposed for structural steel.

British Steel has increased steel section prices by £250 per tonne, seeing large steel sections top more than £1,400 per tonne. And the steel producer has already warned of the likelihood of further price rises in coming weeks, citing the war in Ukraine as a pivotal factor.

The escalating crisis in Ukraine has impacted commodity and energy prices and disrupted trade globally. Steel is impacted by both rising energy costs and the slowing of Russia and Ukraine’s contributions to global steel production.

Russia is the world’s fifth largest producer of steel – producing ten times more than the UK – while Ukraine is the 13th, according to figures compiled by World Population Review. Production capacity for both nations has been seriously stalled, with c.5% of global steel production impacted. While the UK does not rely on Russian structural steel directly, the knock-on effect for the wider global market is significant.

Arcellor Mittal, the largest steelmaker across Europe, has also cited “unprecedented” energy costs as pushing up its prices.

This latest c.25% price rise from British Steel follows steel prices already increasing by more than 200% since early 2020. The pandemic and Brexit have caused far-reaching and long-lasting disruptions to supply chains.

The UK and US governments’ trade sanctions, slowing or stopping the import of Russian energy and commodities, will impact prices further. Natural gas prices have already reached record highs while crude oil is expected to reach unprecedented price levels, up to $200 per barrel, in the next few weeks.

British Steel has warned steel prices could rise further still, too. The steel producer is only releasing capacity for booking in for production up to April 16.

All this comes as businesses grapple with already-rising costs for energy and fuel, and high inflation rates.

Impact on the construction industry

Industry leaders are now warning contractors and clients alike to brace for ongoing uncertainty and challenges, encouraging patience and cooperation through volatile conditions. Clients, suppliers, merchants and contractors are being encouraged to work closely together to share the burden and risk of price rises to protect projects’ viability and maintain overall industry output.

A slowdown in the construction industry could be likely though, commentators have said. This is possible if project plans are disrupted and prices squeezed; where it would be unmanageable or unrealistic for contractors to absorb price rises.

Perspective is also advised, commentators add, recognising that structural steel is not the only material impacted by rising costs. Overall, prices for construction materials including cement, timber and steel rose by 21% in the 12 months to January 2022.

However, the breadth of price rises has led The British Chambers of Commerce to say the Chancellor, Rishi Sunak, must put measures in place to protect businesses. Calls have been made for the upcoming Spring Statement (due March 23rd) to include tax breaks, temporary energy price caps and financial assistance to support businesses.

Elland Steel’s stance

At Elland Steel, we continue to work closely with suppliers and clients alike to navigate and mitigate these challenges, with ongoing, open communication as standard. In an earlier article we looked at how best to forecast for price rises.

Escalator, or inflation, clauses continue to provide some level of protection, allowing prices to be adjusted relative to annual or periodic inflation. However, spot buying – procuring materials as a one-off or on a quick turn-around – which had previously been advised may now be limited by British Steel’s restrictions on order capacities.

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