What the Data Says: Steel Costs

There has been a ton of uncertainty in metals markets throughout the last 12 months. Early on in 2022, there were massive steel and aluminum cost increases as production ramped up to try to get back to pre-COVID levels. Then inflation, supply chain issues like trucking shortages and international affairs simultaneously added to the rising steel costs. The invasion of Ukraine by Russia, for example, shocked the metals market around the world and led to a decline of steel exports from the region. All these factors combined to incrementally increase structural steel costs over 200% in just over two years’ time.

Thankfully, during the latter months of 2022, U.S. mill prices declined, an indication that production was starting to catch up to demand. We’re seeing that trend continue into 2023, as costs stabilize. After structural steel costs increased 268% from the last quarter of 2020 and hit a high point last year, they have been on a steady decline. Over the past three quarters, structural steel costs have decreased 35%, providing some relief to project owners.

Reinforcing steel or rebar costs have followed a similar pattern, rising more than 45% throughout 2021 into 2022 before falling 24% to end the year. This year, reinforcing steel costs are trending slightly up, rising 13% over the past two quarters. It’s been a bumpy ride and it is unclear which direction the line will spike to or settle at as we continue into 2023.

Another rocky visual is the graph for steel sheet piling costs. The cost trendline resembles a mountain range with the summit coming at the end of 2022. Steel sheet piling costs rose hand-in-hand with reinforcing steel costs, increasing nearly 147% from 2021 through 2022. Following that incredible climb steel sheet piling costs have decreased 43% in 2023.

Although not the steady pulse seen in an electrocardiogram, these graphs of steel material costs do have very clear peaks and valleys. Those points have wide ramifications, considering the material is as essential as a heartbeat. Steel supports American buildings, factories and bridges and is a critical material in our schools, cars and kitchens. Dramatic cost spikes have real implications for business owners, contractors and consumers.

Contributing Factors for Fluctuation in Steel Costs

1. Steel Fabrication Costs: Fabrication costs are largely influenced by wage rates and the energy required to shape, cut, drill and weld. The global labor shortage is expected to challenge production and delivery costs for steel mills and fabricators throughout 2023. While some steel used in the U.S. is produced overseas, most of it is made domestically. This means that fabrication wages for the majority of our steel products will follow the rise and fall of the national labor market, which is growing. And while green technology is starting to reduce energy costs for many businesses, steel fabrication facilities require an impressive amount of power to operate.
2. Installation Labor: Our analysis shows an increase of 3.4% year over year for construction labor wages. The entire construction industry is facing a well-known and documented problem – a massive labor shortage. According to Procore and Dodge Construction Network’s recent survey, 58% of steel contractors said half or more of their work is negatively affected by lack of skilled labor, resulting in cost overruns, quality issues and increasing rework. Areas more affected by the labor shortage are seeing a correlating bump in installation costs.
3. Transportation Costs and Tariffs: Over its life, stainless steel is moved from the steel mill to the fabricator then on to the job site. Each mile the material moves adds more to its cost. In addition to wages for drivers, transportation costs, including fuel, equipment maintenance and insurance coverage, tend to go up year over year. Transporters will inevitably pass those costs along to the end user in the form of material price increases. Import taxes and duties, which include tariffs, also factor into transportation costs.
4. Supply and Demand: Through the worst of the pandemic, the United States saw thousands of iron and steel production jobs disappear nationwide. The urgency of pandemic recovery efforts emptied stressed supply chains and inflated prices at a rate we have not seen in recent years.

These four primary factors attribute to the increase in steel costs but there are still additional factors as well. In reality, this is only a small sample of the different influences that our data engineers track constantly.

Gordian regularly collects, validates and analyzes North American construction material, labor and equipment costs to enable our customers to create reliable project budgets, build estimates and validate price proposals. Thanks to the 30,000+ hours of research we devote to construction costs every year, we can examine the price of wood and tens of thousands of other line items from every corner of the U.S. and Canada.

The Effects of Volatile Steel Costs

A wide range of engineers, architects, estimators, contractors and facility owners depend on accurate construction cost data to plan new building construction and renovation projects. Looking at these steel material cost trend lines, these professionals should be on guard for more price fluctuation in 2023. Steel uses in six primary market sectors are driving demand. These industries and applications include construction and infrastructure, mechanical equipment, automotive and transportation, consumer products, industrial and commercial appliances and machinery, and electrical equipment. Building construction and infrastructure is the single largest market for steel use.

Anyone planning and estimating construction will want to keep a close eye on costs. Gordian’s RSMeans Data Online provides cloud-based access to the industry’s leading construction cost database and advanced features like square foot costs and predictive cost data to help you budget and estimate accurately. Automatic quarterly updates ensure you always have access to the most current data available for construction estimating, no matter which way the market swings.

We have been tracking price trends in recent quarters that will have an impact on the cost of construction for the foreseeable future. Many material costs are leveling or falling, but as we can see with steel materials, the real trend is fluctuation. We’ll continue to track these changes and more to keep you informed on what the data says.