More than wood: building materials are causing price hikes
At BORGA Steel Buildings and Components in Fowler, the shortage and doubling of the price of steel has limited the number and types of projects the company is able to bid on. Photo by Frank Lopez.
Written by Frank Lopez
With so many companies in different industries either having to temporarily shut down, downsize operations, divide shifts, and / or downsize work teams in the wake of the pandemic, contractors and manufacturers have faced chain issues. supply.
According to an October 2020 survey by Interos, a third-party risk management platform, 43% of 450 top business decision-makers in the United States said their entire supply chain had suffered some kind of interruption, ranging from supplier price fluctuations to security restrictions. slowdown or suspension of orders, need to find suppliers in other regions due to import and export restrictions and supplier bankruptcy.
BORGA Steel Buildings and Components, a Fowler company that manufactures steel buildings, roofs, solar structures, roofs and components for the commercial, industrial, agricultural and residential markets, has experienced a shortage of steel since the beginning. of the pandemic last year.
As of December, the price of hot-rolled steel sheet had doubled since early August to a two-year high of $ 900 per tonne, according to S&P Global, an energy market news source and raw material.
Ron Heskett, CEO of BORGA Steel, said the company gets most of its steel from steel mills, but with a reduction in material availability, factories are now putting all of their customers on allowances, which means buyers can only buy the amount in the quantities they offer.
“Even though I need more, I can’t get it. I have to go to the secondary market, and if I go to the secondary market and buy from a broker, it’s 40%. 100 more. It was difficult and delayed some of our projects, ”Heskett said.
Heskett said he has seen a significant increase in the price of steel, with some of the materials having seen an increase of up to 95% since the end of 2020.
Steel mills expected at the onset of the pandemic, when businesses were closed, that there would be a drop in demand, so factories slowed production.
The exact opposite thing happened, Heskett said.
There has been an increase in demand for commercial, residential and government buildings.
Factories are trying to catch up with production with demand, but it will take time.
Heskett’s suppliers tell him steel prices will flatten at the end of the year, but he hears nothing of a significant drop in prices or even getting closer to where they were. .
With current high lumber prices, Heskett said steel is entering traditionally timber-dominated markets, such as the agriculture industry. Steel construction for building envelopes is becoming more and more popular as the prices of plywood also increase.
Heskett said plywood goes from $ 17 a sheet to $ 82 a sheet, adding thousands of dollars to the cost of building a house.
With the steel allowances from the factories, Heskett said BORGA can’t even bid on some products because they don’t have the steel. There are even larger companies that call on BORGA to buy steel from them.
“I think we’re going to see additional demand because we think we’re coming to the end of the pandemic and it’s going to limit the timing of materials for a long time,” Heskett said.
Brandon Cooper, president of Beam and Company, Inc., a contractor in Fresno specializing in commercial and multi-family projects, water maintenance and mold, said that after the onset of the pandemic, and with more than people working from home, the maintenance side of the business saw a drop in demand as there was no one in the buildings to report problems.
With so many projects delayed last year and finally started this year, there is a strong demand for an already low supply of resources and materials. There is a “jam of projects”.
At the start of the pandemic, there was a shortage of many supplies needed for construction, such as doors and insulation, and with supplies this low, costs have skyrocketed, Cooper said.
Cooper said that overall there had been 300-400% increases in material prices.
“I get letters from my suppliers at least once a week advising us of immediate material increases, making it more difficult for the builder,” Cooper said. “We bid on a project six months ago where the price of lumber was 150% lower. We have to do the same project today, but who is going to eat the difference? “
However, even with negotiated contracts and fluctuating prices, Cooper said clients understand the situations caused by Covid-19, and contractors and clients are working together to move projects forward.
Cooper said the company has gone from a very small amount of work to be done to an “amazing” amount of work, and projects that normally take a week can take around six weeks.
“Talk to any builder and they’ll say the same thing. They’re going to be buried at work, ”Cooper said.
The pandemic has not only dampened supply lines for building construction, but has also reduced demand for devices and accessories.
Paul Chamberlain, CEO of Linmore LED, a high-performance LED lighting and wireless communications solutions company in Fresno, said the company saw a decline in business due to a drop in demand for its products during the pandemic.
However, in the past month, the shortage has hit the company.
There is a shortage of components inside the drivers – silicon chips and capacitors – and even though it is only a few parts with the shortage, Linmore products cannot be supplemented with missing parts.
Chamberlain said that over the past four weeks there has been a dramatic increase in prices and the delivery time for components is four times longer than it used to be.
The impact will be felt in the months to come, Chamberlain said, as orders are delayed and the company could see a shortage of materials, not be able to fill orders, lose orders and possibly even reduce hours if there are no components to build the orders. with.
“We are placing more orders and larger orders to fulfill,” Chamberlain said. “At the end of the day, we’ll end up increasing our inventory even though we’re already carrying quite a bit of it. Instead of projecting eight weeks in advance, we are now projecting four to six months in advance. “
Along with supply shortages, there are also increases in freight and other costs, which has led Linmore to execute its own price increases in mid-March, and discussions are underway for a second price increase in July.
With an increase in prices, customers are more likely to wait to make purchases, which ultimately hurts everyone in the industry, Chamberlain said.