Brace contractors for steel and aluminum rates impacts

The rates on steel and aluminum could do more than to stop imports: they could also put the brakes on the construction activity.

President Donald Trump signed executive orders on February 10 25% rates to all imports of steel and aluminum In the United States, from March 12. The movement could have a detrimental effect on the promotion of the project, he told market observers at Construction Dive.

Steel and aluminum are fundamental components of construction materials, which means that price increases can be passed through industry, said Scott Damiecki, partner and leader of the New York City construction industry. Cohnreznick, an accounting company, fiscal and advice.

“Increasing the costs of materials will probably increase the overall cost of construction, which tends to reduce global demand,” said Damiecki. “Sectors such as commercial buildings, bridges and residential houses could be affected. Data center manufacturing and manufacturing facilities may be isolated due to pure demand of those. “”

The size and extent of a project will also determine the importance that is affected by the rates, said Brian Kassalen, director and leader of the construction industry of Baker Tilly, a advisory, fiscal and company company. Insurance.

“The bigger the project, the more impact tariffs they could have,” said Kassalen. “For example, commercial buildings, multi -family buildings and government buildings in the planning phase are more likely to be affected by rates, unlike a single -family house that will end in the summer.”

This type of price volatility could have an impact on the project periods, said Ron Ciotti, a Hinckley Allen’s construction lawyer, a Boston -based law firm.

“Many new projects will no longer be a pencil, causing a global reduction in the number of new projects,” said Cyti. “Owners and developers will be worried about delays due to the disruption of the supply chain and the scarcity of products, and being a shy gun that has just dealt That there is no more confidence in the flow of goods and materials. “

Costs

Sam Giffin, Principal Director of Gordian Products, a construction cost data monitoring company, Accept that these material accelerations can lead to General Deletion of the project.

“Apart, it is likely that the increase in steel and aluminum costs will promote some projects in a delay decision, especially because we consider other economic variables at stake,” said Giffin. “The decision makers are certainly sustaining rates of sustained interest and the threat of significant decreases in the construction pool, as they make decisions on the allocation of capital.”

At least the rates will pressure additional on the costs of the construction project, said Giffin.

“Costs will probably increase from these highest material prices, and this will probably be transmitted to consumers or project owners through contractor offers,” Giffin said. “It is difficult to imagine a scenario in which these rates do not lead to another inorganic increase in market building market prices.”

When the Trump administration promulgated steel rates in 2018, U.S. steel imports fell by 19%, while overall steel consumption remained constant. This led to the prices of reference steel materials by jumping 14% in the first year, although it was slightly retreated to 10% at the end of 2019, Giffin said.

Kassalen said that the load at this moment will fall on the shoulders of the construction industry.

“For imported steel, it is expected that the costs due to the rates will be passed directly to construction projects,” said Kassalen. “The general expectation is that the costs of the project will increase as a result of the rates.”

Giffin said aluminum prices will also increase. Kassalen hopes that these gains will also be transmitted to construction projects, especially on the commercial.

Impact on margins

Contractors are likely to hear compression in a few months if the rates come into force in March, said Julie Workman, a partner at Saul Ewing, a Filadelphia -based law firm.

“It will be relatively immediate,” said Workman. “Since the rates allegedly come into force the following month, I think these prices will begin to climb very quickly, certainly in summer.”

For contracts already signed or ongoing, the absorption of increasing costs will reduce the margins of the contractor, said Damiecki.

“Signed or process contracts did not take into account the cost of rates. Therefore, it is likely that the increase in costs will be absorbed by the contractor that will affect the margins as the recovery of the additional costs is unlikely,” he goes Damiecki. “For future projects, contractors should review the terms of the contract to incorporate price climbing clauses”.

Ciotti said that prices could come even sooner. In fact, construction entry prices jumped 1.4% In January, marking the largest monthly increase in two years, according to the most recent analysis of associated builders and contractors.

“In 2018, when President Trump initially threatened the rates to steel and aluminum, the price of steel and aluminum jumped immediately, long before the rates were really implemented,” said Ciotti. “So, if the old saying that the story is repeated is accurate, the industry will immediately feel the impact of costs.”

Some contractors with large stocks of material may be able to mitigate market pressure for a while, said Giffin. But this proactive approach will cause contractors as a whole to be quickly affected by supply chain interruptions and the scarcity of products, said Ciotti.

In other words, the construction industry will withstand the impacts related to the rates, according to a global report of S&P.

“Steel and aluminum users, such as construction and automobile industries, will be disproportionately affected,” according to the report. The rates would increase the costs of “construction projects, such as housing, infrastructure and possibly defense contractors”.