Forecasting for fluctuating steel prices

Recommendations on navigating and mitigating for the risk of further rises to steel prices.

With ongoing steel price rises and supply chain uncertainty, a crucial question for contractors and clients is how to adequately forecast for projects.

Rising steel prices have been a cause for concern across many sectors since the outbreak of the pandemic, prompted and deepened by a number of global challenges.

Impacting all industries – from manufacturing and automotive to construction and transport – contractors and clients alike have faced ongoing warnings from industry leaders to plan and allow for price rises – but how?

 

Why have steel prices been rising?

 

Since early 2020, steel prices have risen by well over 200%.

This was first prompted by closures of steel mills during lockdowns worldwide as producers anticipated slumps in activity. But demand remained high, as consumers changed their spending habits to buying products over services. And many mills re-openings were either delayed or behind the activities of their customers.

The situation was further intensified by global supply chain challenges, as the pandemic impacted transport worldwide and the UK saw its own logistics challenges from the Brexit transition, slowing the movement of goods.

Some relief had been forecast for the third quarter of 2021, with experts previously predicting steel prices would begin to level off during this period.

Instead, soaring prices for energy and transport saw an extra £30p/t added to structural steel prices in September. British Steel said it was temporarily being forced to pass on the rising costs as driver shortages continued and electricity and gas prices rose by 300% and 400%, respectively.

However, in other ways supply chain challenges could also be holding further demand at bay. Shortages of microchips have prevented the automotive industry from increasing its output of new cars, delaying more demand for steel.

 

The steel price forecast

 

Now the steel price forecast suggests rising costs per tonne are here to stay into the first quarter of 2022, largely due to the ongoing challenges of driver shortages.

Of course, these challenges are not exclusive to steel. Other materials, including glass, cement and timber, have already faced rising prices or are anticipated to very soon.

Finding ways to navigate this challenge and mitigate against the risks it creates for planning and budgeting, is key.

 

How can I plan for further steel price rises?

 

While these challenges make forecasting and budgeting for upcoming, and even ongoing, projects tricky, it isn’t impossible.

Ensuring contracts have robust escalator clauses, or inflation clauses, will allow for prices to be adjusted relative to annual or periodic inflation – particularly pertinent as inflation is now at a ten-year high.

Where possible, spot buying has been advised by some industry experts. Procuring materials as a one-off or on a quick turn-around avoids being locked into higher costs even if steel prices do begin to lower.

And some contractors are also identifying ways to use alternative materials to avoid shortages or delays of resources.  We have talked previously about how experienced contractors are finding alternative material streams to shore up supplies. Mill-finish aluminium has been used on some industrial projects, in the absence of pre-coated aluminium cladding, for example.

Good contractor engagement and communication is also key, including early contractor involvement. Having the right people offering expert guidance and the most up-to-date activities for their sub-sector remains essential.

While no one can predict the future – particularly in such challenging, even volatile, market conditions as this – we can plan with the reality of uncertainty in mind. The above steps can at least begin to mitigate challenges and begin to bring some stability and long-lasting confidence to the industry.

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