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The renewed push for onshoring is already stretch the terms of recruitment for many materials at all levels, i.e. microchips, HVAC equipment, electrical appliances and manufactured millwork.
Now, in addition to these materials, these multibillion dollar megaprojects are also pushing for steel.
Chip factories, battery plants and even data centers require larger and larger steel conduit than typical non-residential construction, such as office buildings or hospitality facilities, va said Dale Crawford, executive director of the Steel Tube Institute, a Chicago-based organization that collects keys. producers of the steel industry.
Expenditure on manufacturing construction projectsthe largest non-residential building segment, reached a seasonally adjusted annual rate of $206.85 billion in October, up 71.2% from October 2022. Data center starts should to reach $16.4 billion in 2023 and $17.9 billion in 2024, an annual growth of 14% and 6%. , respectively, over the next two years, according to Dodge Construction Network.
For smaller contractors, that means these types of projects will further amplify the pressure on steel prices, said Scott Keller, an engineer at Gordian, a Greenville, Carolina-based construction cost data tracking firm. from the South This is true even after a short break following work stoppages at some plants.
“We have seen steel prices decline in the second half of 2023 with the United Auto Workers strike decrease in demand for certain steel products. Now that the strike is over and demand is up, steel prices are following suit,” Keller said. “We would expect that if these all megaprojects move forwardfurther increasing demand, it could hamper smaller contractors with higher costs and possibly longer lead times for residential projects.”
Prices of steel products, such as large structural sections, heavy plate, strip, wire, rod and pipe, fell 2.5% in October and are up nearly 10% over the past 12 months, according to data from the Bureau of US Labor Statistics. However, despite the much-needed cooling over the past year, steel products are still 62.1% more expensive than in February 2020.
“This is bad news for smaller contractors, who are already struggling with reduced commercial real estate activity,” said Anirban Basu, chief economist at Associated Builders and Contractors.
“Smaller contractors tend to be the most reliant on developer-driven activity,” Basu said. “With developers facing higher borrowing costs and more difficulty lining up project financing, the backlog among some contractors is beginning to dissipate.”
Smaller contractors, or those companies with less than $30 million in annual revenue, have now posted three straight months of global backlog contractions, according to the ABC Lagging Indicator report. On the other hand, contractors with annual revenues above $30 million continue to accumulate work.
For example, companies bringing in between $50 million and $100 million in sales saw the largest backlog growth in October, according to ABC’s Backlog Indicator report. This string of jobs from larger contractors, along with other global trends, will put pressure on steel prices again in 2024, said Sam Giffin, Gordian’s director of data operations.
“Looking at market trends over the last six months, we’ve seen steel prices stabilize to a large extent,” Giffin said. “[However,] with reduced international demand from China, rising costs here in the U.S. and supply constraints, it looks likely that prices will continue to rise slightly in 2024.”
Reason for optimism
Not all news is bad, though. Steel pipe and tube, which includes conduit, represents a small fraction of global steel demand, Basu said.
Therefore, while substantial data center investments and manufacturing projects may put upward pressure on steel pipe prices, this does not necessarily translate into an immediate increase in steel prices over the next year, he added.
“Prices received by domestic iron and steel producers continue to increase by more than 52% from February 2020, but have fallen by 26% since the end of 2021,” Basu said. “Other factors such as declining global demand, falling diesel prices and softer activity in other non-residential segments should allow steel prices to continue to moderate, although they will remain elevated in relative to the pre-pandemic level.”
