Steel still cheap despite 232: AISC to builders

Steel will remain a competitive building material despite big Section 232 tariffs, the American Institute for Steel Construction (AISC) has advised its membership - ranging from steel fabricators to structural engineers.

Even if steel prices rise 25% on the back of the tariffs that were implemented on Friday March 23, that doesn’t mean that the cost of a steel building package will rise 25%, the institute’s specialists in government affairs and market development said in a webinar on Friday.

For a $100-million project, a steel frame can typically cost $12 million, or 12% of the overall package cost, according to Tabitha Stine, the AISC’s vice president of market development and a civil engineer.

Of that only 30% – or $3.6 million – represents the raw cost of mill steel, with the rest comprised of steel value-add and fabrication work, she added. The raw cost means steel that has been bought from mills or service centers, not further worked.

So even with a 25% cost in the jump of that steel – what the AISC dubs the “worst case scenario” – just $900,000 will be added to the cost of a $100-million development, representing 0.9% of the overall package.

Additionally, a concrete building – typically reinforced with steel rebar – contains some 80% of the steel tonnage used in a steel building framed by structural steel, AISC representatives said.

So the costs for a concrete building – which contain other steels like post-tensioning strand, duct work, elevator framing and mechanical pipe – can be expected to rise broadly in tandem since the Section 232 tariffs apply to all steel equally, they said.

Decision makers in construction “definitely shouldn’t be making [their] decision based off the tariffs,” Stine said, adding that material choices should be based on owner requirements and design criteria.

Rebar and structural steel, defined as load-bearing products, are competing materials in construction. American Metal Market’s latest assessment for steel rebar was at $34-35 per hundredweight fob mill on March 21, up 21.1% since the start of the year.

Domestic 8- x 8-inch standard beams were at $38 per cwt fob mill in American Metal Market’s latest monthly assessment, up 12.6% in the same comparison.

Meanwhile, the steel construction industry is contemplating backlash from the construction community, with builders potentially backing away from steel in a knee-jerk reaction to the Section 232 news. Steel market participants have expressed concerns that wood and other building materials could capture steel market share.

Plenty of capacity
Still, even if steel imports were to drop to zero, the US steel industry has plenty of capacity to serve construction and other markets, Stine reassured webinar attendees.

Construction accounted for 43% of 2016 domestic steel shipments, so the end-market is a big deal for steel, as a “lion’s share” of US demand, she noted.

“We have the capacity. The domestic structural steel market, both on the production side and the fabrication side, is alive and well and very vibrant,” Stine said at the start of the webinar, which had an estimated attendance of 4,400 people.

US steelmakers now have some 50 million tons of idled capacity to serve US demand, according to Brian Raff, the AISC’s director of government relations, citing a Boston Consulting Group analysis.

US steel demand totaled 101 million tons in 2016, with capacity at 149 million tons, he said, putting imports at 38 million tons last year.

“In a worst-case scenario, if our US steel producers [were to bear] the brunt of all those imports and produced all that steel that we originally imported, we’d still have 11 million tons excess capacity,” Raff said on March 23.

“So… there’s absolutely nothing to worry about in terms of availability,” he said. “Now, will the market react to tariffs? Sure. Will there be some uncertainty which may make people a bit more risk averse about making decisions? Yes, of course.”

While market jitters might cause an overreaction, market fundamentals show there’s plenty of capacity in structural fabrication, he said, noting that US fabricating capacity stands at 10 million tonnes per year versus 6.3 million tons of domestic output and a further 1.7 million tons imported.

That means just two-thirds of US fabrication capacity is presently active, with “plenty of room” to take up extra work. Even if imports went to zero, the US would have 2 million tons of excess fabrication capacity, assuming constant demand.

The AISC itself took no position for or against the Section 232, although it participated in public hearings to provide information, representatives said. But the association did consistently maintain that if any Section 232 tariffs were imposed they should include fabricated structural steel. That demand thus far has not been met.