Construction, Government, and Manufacturing

Steel tariffs prompt uncertainty

Prices might vary depending on which countries will be exempt, construction industry officials say.

March 16, 2018
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With President Donald Trump’s recent announcement to impose tariffs on imported steel and aluminum, uncertainty surrounds how the policy shift will affect the cost of construction.

According to The Washington Post, the most recent terms subject foreign steel to a 25 percent tax. Mexico and Canada have temporary exemptions from the tariffs, as the Trump administration seeks broader trade negotiations concerning the North American Free Trade Agreement (NAFTA).

Steve Entingh, owner of Bennett Steel, said the steel industry has had to raise its prices as the cost of input has risen for the past four or five years, but the price increases that would have been passed to steel users and fabricators have not held until late 2017.

“This may be due to foreign dumping meeting increased market demand as our economy has improved,” he said.

Entingh also noted, during this four-to-five-year period, the industry has not suffered any steel shortages.

Bennett Steel is one of several small-scale fabricators in West Michigan, providing fabricated steel parts for a number of clients, including Grand Rapids-based Orion Construction.

Entingh predicted costs would be passed onto customers in the short term, but construction clients will not immediately feel the cost increase of steel. Contracts that already have an estimate will not be altered.

Brian Glick, vice president of business development and marketing at Alro Steel, a national metal processor and distributor with multiple Michigan outlets, said while it’s certain customers will be hurt by increased costs, it’s uncertain by how much.

“We import quite a bit of steel, most of it because we have to,” Glick said. “You can’t get it in the U.S.”

Glick said prices might vary depending on which countries the Trump administration chooses to impose tariffs on and which ones to exempt. According to The Washington Post, the 25 percent tariff on other countries may increase if Mexico and Canada win permanent exemptions.

Price increases also may vary depending on types of steel and the individual parts. In the past five years, Entingh said he’s seen as much as a 20 percent increase on certain types of steel and as little as a 5 percent increase on others.

Possibly, one of the larger stakeholders in the steel industry is Robert Grooters Development Company in Grand Rapids. With a large warehousing and office footprint south of the Gerald R. Ford International Airport, the company is one of the major purchasers of prefabricated steel in the region for construction.

But even with uncertainty surrounding tariff discussions, owner Robert Grooters is confident in the company’s ability to deliver to customers, mainly because of its “high-volume, low-market” approach.

“We just buy a lot of product and give a discount to the people we’re working with and, then of course, loyalty and service,” he said. “We already have inflation because our building costs have been going up a lot. I think, probably, we’ll do fine because of the volume of business overall, volume of growth and the percentage that we end up doing.”

Grooters added the tariffs might compel companies to stay away from new builds and instead lease existing space, causing rental rates to increase strongly.

“I think we’ll be at $4.50, $5 a square foot,” he said.

Grooters said his company jumped in response to Trump’s tariff announcement and began ordering steel from suppliers before the tariffs took effect, but the price already had jumped 8 percent.

“We have to order these buildings by next week,” he said. “Already it’s gone up 8 percent, and beyond that, they’re not quoting how much. Because the (tariff) went through at 25 percent.”

Grooters explained the price jumped so quickly because there currently aren’t enough steel mills in the U.S. to meet demand, so existing mills already are increasing their prices to match imports.

According to a recent CNBC article, U.S. Steel is reopening an idled plant in response to the new tariffs. The company is restarting two blast furnaces and the steelmaking facilities at its Granite City Works integrated plant in Illinois, but the restart process could take up to four months.

“The environmentalists are so tough today you can’t get these babies back online very easy,” Grooters said.

Grooters said he believes tariffs generally are important to maintain fair trade with other countries, but the policy has to be sustainable to a point where the domestic market can adjust to price fluctuations.

“As we get this 25 percent increase, how can we possibly adjust to that kind of increase in one shot?” he said. “My belief is we need fair trade, but we need to step into it slowly — for example, maybe 5 percent a year, work yourself up to it.”

Grand Rapids-based Rockford Construction declined to state an opinion on steel tariffs because of the uncertainty surrounding the deal, but Shane Napper, president of construction, said the company is closely monitoring the situation.

“Rockford continues to monitor these conditions, as we do on a regular basis, to better understand the impact on these commodities,” Napper said. “Our teams are working closely with our clients to help them budget and plan correctly to ensure their projects stay on schedule and within budget.”

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