What the Data Says: Structural Steel Costs Volatility

In this edition of What the Data Says, we’re taking a look at the extraordinary rise in structural steel costs. The cost trends and analysis of material pricing are constantly a hot topic of discussion in the construction industry and beyond – whether in response to public policy, concerns about infrastructure or the effects of the pandemic and natural disasters.

As a company on the forefront of the construction industry, we welcome the conversation, and we would like to add our expertise. Through this blog series, we examine the long-term cost trends of the industry’s most vital materials.

Contributing Factors for the Rise in Structural Steel Costs

Concerns about steel costs are warranted given its prominence in the United States. Steel supports our buildings, factories and bridges; It’s a critical material in our schools, cars and kitchens. Structural steel is everywhere. A dramatic spike in its cost has real implications for business owners, contractors and consumers.

Gordian’s Principal Engineer identified four contributing factors for price fluctuations in steel:

1. Steel Fabrication Costs: Fabrication costs are largely influenced by wage rates and the energy required to shape, cut, drill and weld. 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 working wage rate, 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: Installation costs, like fabrication costs, are directly linked to wages and domestic wage rates are projected to continue their hike upward. The current employment levels in the U.S. have also created a shortage of available labor. This means that employers are paying extra to secure and keep workers on staff. Areas more affected by the labor shortage will likely see a correlating bump in installation costs.

3. Transportation Costs and Tariffs: Over its life, steel is moved from the steel mill to the fabricator then on to the job site. Each mile the material moves will add 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. The providers 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. As you are undoubtedly aware of, the U.S. is currently carrying tariffs on steel imports against many nations.

4. Supply and Demand: The impacts of the pandemic hit industrial manufacturers and factories hard, especially those that depend on workers whose jobs cannot be carried out remotely. Many manufacturers retrenched in response to the economic downturn that followed COVID due to uncertainty over the timeframe of the disruption. In many cases, they could have continued production with safety protocols in place but due to uncertain demand, they didn’t.

The effect of public health requirements, COVID-19 outbreaks and reactionary measures caused by future uncertainty was a halt or delay in production. Through the worst of the pandemic, the United States saw thousands of iron and steel production jobs disappear nationwide. With businesses starting to ramp up operations, there is a nationwide clamber for commodities such as aluminum, drywall and lumber. The high-demand nature of the pandemic recovery has emptied stressed supply chains and inflated prices at a rate we have not seen in recent years.

All of these things attribute to the increase in steel costs but there are still additional factors. In reality, this is only a small sample of the different influencers that our data engineers track constantly.

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Our Construction Cost Database

Gordian regularly collects, validates and analyzes North American construction material costs to maintain RSMeans data, our construction costs database. RSMeans data contains more than 85,000 material, labor and equipment prices localized to 970+ locations. Thanks to the 22,000+ hours of research we devote to construction costs every year, we can examine the price of steel and tens of thousands of other line items from every corner of the U.S. and Canada.

Tracking Structural Steel Costs

In a previous analysis of steel costs, we looked into the data changes from 2011-2017 and discovered that a large increase one quarter is predictably followed by a proportional decrease the following quarter. These swings could be significant — about 13% in either direction. But over time, all that flux amounted to steady one percent growth. This seems to hold true until recently, as 2021 has seen an unprecedented rise in structural steel costs.

Structural Steel Costs Graph from Gordian

With the news and introduction of tariffs in 2018, the fluctuation in the price changes increased from 13% to as much as 30-33% in any one direction before bouncing back towards the trend line. Over the course of 2019 and 2020, steel prices both dove and soared but the trend line stayed relatively steady — showing an increase of less than 2% from Q1 of 2019 to Q1 of this year, 2021.

Over the past several months, we have become accustomed to volatility in this commodity’s pricing but the latest increase is unprecedented. The price of structural steel has increased 91% since the last quarter of 2020, rising 45% in the past quarter. The continued rise over the past quarter is causing grief for consumers of steel. If you’re in the market for a new appliance or car, you’re likely to be impacted by this sudden rise as well, either through cost increases or delays in manufacturing.

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Increases from Beam to Board: Other Construction Material Costs

Structural steel costs are not the only price on a meteoric rise. As we recently discussed in our analysis of lumber costs, the prices of framing lumber, plywood and pine boards are also climbing. As of the end of 2020, we were seeing the highest lumber costs on record. Already at an all-time high, our engineers report prices have only continued to rise — now up an average of 58% nationwide since the beginning of 2021.

These rising price trends we have seen in recent quarters will have an impact on the cost of construction for the foreseeable future. This volatility in price hikes has stunned the market. We’ll continue to track these changes and more to keep you informed on what the data says.

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About Gordian

Gordian is the leader in facility and construction cost data, software and services for all phases of the building lifecycle. A pioneer of Job Order Contracting, Gordian’s solutions also include proprietary RSMeans data construction costs and Facility Intelligence Solutions. From planning to design, to procurement, construction and operations, Gordian’s solutions help clients maximize efficiency, optimize cost savings and increase building quality.