Precast Inc. - September/October 2008 - (Page 11) absolute ban on exports. Russia has high tariffs as well and is reportedly looking to raise them higher. These regulations place an obvious skew into the market and, combined with the weak dollar, increase the demand for U.S. scrap. Can’t producers just pass on this higher cost of steel to their clients? Wouldn’t state DOTs, say, just pay more for underground pipe or bridge girders? Washabaugh: It’s not that simple. For producers, the time from bidding a job to actual production can be as long as a year. In the current global market for scrap iron, steel supplier quotes are typically only good for one to seven days. Therefore you assume the risk of out of the price of the material at the time of shipment and any cost surcharges due to fuel and scrap iron prices that may get added. This means that we must bid jobs based on current prices for reinforcing steel and assume enormous risk for what steel will actually cost when the job is finally awarded, materials are ordered and production actually starts. steel in (the concrete components of) the first project and the contractor had another 12,600,000 pounds on the cast-in-place construction part of the project. For just our part (of the contract bid), a one-cent increase in the cost of the steel amounts to $120,000. Remember that this job would not start for over a year. If the steel price were to go up 70 Increases in reinforcing cents per pound – which it seemed to steel prices between the have the potential to do in the opinion of the experts we deal with – that time a job is bid and the could mean a cost increase of time production starts $8,400,000 that would have had to be can easily be more than built into our original bid. Otherwise, we accept the risk for the potential $1 million for some steel price increase, as the owner projects, a contract loss would not accept an escalator clause in the contract. that can put a producer business. Did you just say a price increase of more than $8 million dollars? Washabaugh: Yes. And the state’s economy makes it more complicated. You need to remember that the economy in Michigan today is very rough and was for two years before the rest of the nation felt it, so there’s very little margin on anyone’s bid prices. That increase would put our company out of business if we were not prepared or adjusting for it. In fact, the price of steel between the time we How big of a financial risk to the producer are we bid the job and now has gone up over $1,400,000 and because talking about? the contractor has not been awarded the job yet, no steel Washabaugh: Let me give you some real-life examples. Let’s orders have been made to protect any prices. take a couple of jobs we (Northern Concrete Pipe) bid on this Another example is a job we bid on last fall for specialspring. There were more than 12 million pounds of reinforcing design, large-diameter pipe that has had award delays into this spring. On this job we had to order new steel forms and the steel for the pipe reinforcing. The forms had gone up in cost on this order – as have all other steel forms we have ordered – from the time of quotation to the time of order this year. The 800,000plus pounds of reinforcing have also gone up as in the first example. None of this cost increase have we been able to pass on to the owner. The current situation has gotten so out of control that (steel) quotations hold no value as the steel price you are bound to pay – that is if you can even get the material – is what the going price FOREIGN COUNTRIES CONTROLLING THE SUPPLY actually happens to be on the day OF STEEL BILLET ARE PARTIALLY RESPONSIBLE of shipment. The unpredictability FOR THE VOLATILITY IN THE STEEL INDUSTRY. of steel prices does more than Courtesy CRSI SEPTEMBER/OCTOBER 2008 | WWW.PRECAST.ORG 11 http://www.precast.org
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