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Steel prices have been steadily rising for several months now,
and the costs are beginning to show up in construction costs.
Estimates vary across the board, but most indicate that the
price of steel has increased up to 66 percent during the past
year.
The spike in prices are affecting the cost of
construction because steel is used not just in the structure
of the building, but in so many other building products – nails,
screws, electrical conduit, metal studs, concrete reinforcing,
door hardware, just to name a few.
Of course, rising prices are nothing new. Prices
rise and fall with economic upturns and downturns because of
basic supply and demand forces.
Natural and man-made disasters also cause wild
upward swings in material costs. For example, the cost of drywall
and lumber regularly spike upwards immediately after a major
hurricane hits the east coast or a major forest fire on the
west coast destroys thousands of homes at a time.
The current increase in steel prices are being
blamed on China, whose building boom is fueling their high demand
for scrap metal.
Last year, China’s demand for steel equaled
Canada’s and Mexico’s combined.
In March of 2002, President signed issued an
order to create tariffs on imported steel in an effort to protect
US steel companies from artificially low prices. At that time,
steel prices were at a twenty-year low, primarily due to the
dumping of cheap steel on the US market by countries that subsidized
their steel producers. The measure President Bush implemented
helped place the US steel companies in a position to compete
fairly with offshore steel producers. It also gave them time
to implement changes to make their companies more productive
and profitable.
On December 4 of last year, President Bush withdrew
the tariffs, saying that they were no longer needed.
Experts believed that steel prices would drop
after the tariffs were eliminated, but China’s extraordinarily
heavy demand for steel caught them by surprise. China has been
purchasing enormous quantities of scrap metal, causing a shortage
of steel in the United States and much of the rest of the world.
While this has caused a temporary increase in
construction costs, it is interesting to note that in other
countries, deflation has led to a decrease in construction prices.
Japan’s prices have fallen for the past 10 years,
and are just now beginning to inch upwards.
In 2002, Thailand’s prices fell 3.4%, but went up 7.1% in 2003.
In Hong Kong, where prices fell 40% over a five-year period,
prices went up 5.1% in 2002, and are anticipated to increase
more in 2003.
The point of all that is to say that the problem
of rising prices, regardless of their cause, is certain to happen
and happen on a consistent basis. By the same token, prices
consistently fall. The same will happen when China’s demand
for steel begins to weaken, or when mining companies begin to
produce more iron ore.
It is also important to remember that the export
of scrap metal from the United States to China also means a
big infusion of cash into the US economy, which in the long
run will be a good thing. The United States has been fighting
an export deficit for many years, which has steadily drained
capital from the US economy.
The answer to those who are concerned that the
rising steel costs will make their projects too expensive is
that the high costs will pass. One of the things that I advise
my church clients is that once they commit to a building project,
they may be 18-24 months away from a finished building. A lot
can happen to prices and the economy in that amount of time,
as we have seen with the spike in steel prices that began around
October of last year.
The best way to take advantage of low prices
is to be ready to build when they occur, and the best way to
reduce the relative cost of a building is to design it in a
frugal way, with as little waste as possible. By designing smart
and being ready to pounce quickly on opportunities in the economy,
churches can save tremendous amounts of money.
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