Community Chat: Fabricators Call for Shared Price Risk

Structural & Steel Products bids on government contracts for infrastructure projects that can span months or even years. During that time, the cost of materials can change dramatically and unpredictably, as it has over the past two years. “When you have projects you quoted a year or more in arrears and steel goes up by 100-150%, and now the customer is looking for that product, you have a problem,” Desigio said.

“The crux of where we sit in the supply chain forces us to take on a whole lot of material risk for these infrastructure projects,” said Matt Brace, CEO of Structural & Steel Products and owner of rebar fabrication company Brace Steel. “We need to learn to deal with that better as an industry and spread around the risk. As it is, the fabricator is on the hook for the whole amount.”

Wild swings in the steel price threaten bankruptcy for small fabricators, unless they can pass some of the cost through to the contractors and ultimately the owner of the project. Often the ultimate decision makers are government officials, who may be unaware of the escalating steel costs and are naturally reluctant to renegotiate contracts.

On the positive side, demand for construction is strong across the country, particularly in Texas, which has allocated $4 billion for infrastructure spending. Some projects have been delayed over the rising material costs, however. “Demand has not risen at the same trajectory as the rise in prices, so where that settles out over time, who knows?” Desigio said.

When material alone represents 70-80% of a project’s cost, the recent volatility threatens the very survival of some fabricators, Brace said. “There has to be a better way as an industry to share that cost.”

Editor’s note: Join us again at 10 a.m. ET (11 a.m. CT) on Wednesday, April 6, when SMU will welcome Ryerson President and CEO Eddie Lehner for the next free Community Chat. Click here for more information and to register.

By Tim Triplett, Tim@SteelMarketUpdate.com