By Bill Ray
Steel price continues in a downward trend. Cement price is responding to renewed shortages again this year. This is the time to review vendor pricing. Get commitments from your steel vendor. Check cement price risks on your long term contracts.
A brief review: Early last year
steel prices shot up to very nearly double the earlier levels. That was
followed closely by a shortage in cement. We have come to discover
that the US is dependent upon foreign supplies of both steel and cement.
Where does this stand now? What is the outlook?
Price outlook 2005:
For now steel price has been flat to declining, but price rise will likely resume.
Cement price is again in short supply with rising prices.
Last year, many producers found themselves upside down on contracts. Where this was survival-threatening, accommodations were reached, typically through a value engineering solution. Some private work was renegotiated. Renegotiation is not allowed on DOT.
Last year there was a good deal of discussion of price escalators in the contract. This has not become a common in practice.
Both steel and cement in the USA depend on imports. The American appetite for imported oil and Chinese manufactured goods has resulted in a huge imbalance of trade. The US dollar will continue to weaken and drive up the cost of imported goods, including steel and cement.
Steel The consensus view last year that price would decline modestly toward the end of year was accurate. Rebar price today is flat to declining. But, worldwide supply and demand balance remains close. Today's high prices are attracting a lot of new steel capacity additions. The cost of iron ore and fuel are at record highs and will continue to push steel prices up. The consensus view is that price will remain about where it is for now, then continue to go up.
Steel and Cement Price graphs from Engineering
News Record, 20-City price average.
Rebar price had been in a modest decline since the high point last September.
Cement price has been increasing steadily with only slight pause.
Cement Prices have been creeping up, one increase at a time. The special tariff on cement from Mexico has been in intense negotiations in Washington DC. It looks like an impasse to me with a roll back a long way away. Prices continue to be lowest in port cities. That indicates that international supply exceeds demand. But, delivery to port cities continues to be hampered by a shortage of bulk carrier ships. The forecast of cement prices near $100 ton still seems possible.
Problem or Opportunity
Every problem is an opportunity. Last year some producers had very serious problems with fixed price contracts. The smart producer benefited from cultivating alternate vendors for both cement and steel. At this time of temporary price weakness in steel, I recommend you take tactical advantage. Ask for a price review. Ask for price guarantees to match your longer run contracts. This is the time. If you have not cultivated another cement vendor, do it now. Review your mix designs.
The silver lining This is also the time to make some changes in your operations and marketing.
The precast advantage. Finally, remember that among our greatest strengths are:
Structural steel continues to be much higher priced than a year ago despite recent flat prices. Readi-mix continues under adverse price trends. The precast advantage is real.
In short, capitalize
on the opportunities.
For contact and information
visit our website: www.precastconsulting.com
Management Professionalism for the Precast Industry