Mitigating risk as steel prices rise…again

The construction sector is booming and steel prices are rising – but things aren’t about to burst.

Steel prices have risen once again, this time by £80 per tonne in June.

The latest hike comes as British Steel faces increasingly high costs for raw materials and increasing pressures on availability.

Steel prices in the UK are now more than 30% higher than they were at the outbreak of the pandemic.

There are a number of global factors creating these prices rises, most significantly with increased production and demand in China. Additionally, lower production levels in other countries due to lockdowns are coupled with higher recovery rates as countries bounce back from the pandemic quicker than forecasted. And then there has been the uncertainty from the Brexit transition, scarcity of haulage in the UK, and delays or scarcity in the shipping market worldwide.

Set against this global backdrop, demand is growing as the UK’s construction sector works hard to recover from the pandemic. It’s thought this boom could last for at least the next 12 months, with infrastructure projects commencing while developments delayed by the last year’s lockdowns are still playing catch up.

And it’s not just structural steel which is presenting challenges for this boom. Similar trends, of rising prices and reduced availability in the face of huge demand, are being seen for many other construction materials, including timber, plastics and cement.

This presents two challenges for contractors – the first, in completing contracts when materials are scarce, and the second, in profitably completing contracts which were secured based on ‘old’ material prices.

However, there is an acceptance by many across the sector that those ‘old’ prices weren’t necessarily right – essentially, steel prices prior to the pandemic were too low. It is more so the speed of the price rises, rather than the rises alone, that are the challenge.

Understanding that these prices look set to stay and working this into future planning will be key to weathering these challenges, along with retaining close supplier relationships – particularly as these are being tested. In its most recent price rise announcement, British Steel warned that order acceptance will continue to be on a strict customer allocation basis until at least the end of September. It had only reopened its order book at the end of May.

The sector will now be hoping economists’ predictions are right, that steel prices and demand should be beginning to level off by the end of the year.

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