Steel Round Table

The Steel Institute of New York in cooperation with New York Construction magazine convened a panel in June to discuss the escalating costs of steel and its impact on the New York metropolitan market. Here is a transcription of what occurred.

Gary Higbee: When we speak of steel price increases, we speak of volatility. What are we really talking about in dollars and cents and what are the factors behind the increase?

John Cross: When we talk about pricing, we have to be careful to distinguish between different types of steel. All steel hasn't reacted quite the same way in the marketplace. On the structural side with wide flange numbers, since early December 2003, we've seen about a 40 percent increase in the mill price. That increase has been primarily triggered by increases in scrap costs. As the scrap price went up because of demand, we saw the mills have no choice but to price their product based on the cost of raw materials. During that same time, the global demand for structural steel has increased and the paradigm has shifted slightly, so that right now the pricing isn't so much based on cost of raw materials today but more against the global demand for steel. So what we see today is domestic structural steel being about $100 a ton less than the global price for an equivalent product.

Higbee: I read in one of the local periodicals just last week that the price recorded is $700 a ton for steel, or 75 percent increase.

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Cross: Not for structural shapes. That may be if you look at some products like tube that is coming more from the sheet mills. All of your structural materials are coming from electric arc furnaces with 90 percent retired material. So there are increases in that level but certainly not in the structural area.

Scott Melnick: Let me clarify a little bit what John said. The first thing to remember is that we're not in a shortage situation. It's not a supply problem.

Ken Hiller: Our concrete suppliers are claiming that the rebar has gone up substantially more and they have to work from steel service centers. They have claimed rebar has gone up about 20 cents a pound.

Allan Paull: We're hearing the same thing.

Hiller: Yeah, which is about double, 100 percent. However, in a steel building, steel is substantially more structural steel than there is in a concrete building. We found that the aberration in steel seems to be dying down. In the last couple of months, I don't think there's been a change. We're over that hump. Now, what the future holds, I don't know. China scrap issues seem to be dying down.

Paull: We have a number of jobs that are in the process of going out to bid. In talking to steel contractors and some owners, there was talk of indexing the steel price. What we're finding is a lot of the contractors do not want to index the steel price. They want to take the risk. They're into risk by nature. In fact, the one job that is talking about indexing, the owner is betting that the price is going down. So, he wants to index to try to capture that benefit. We're hearing the same thing, that there was a spike and prices seem to have started to moderate and are predictable. What we need in the market is predictable pricing and that seems to have started to return to the marketplace. Steel, the raw material, is about 25 percent of the whole cost of a steel building.

Hiller: If you took $160, which is a number that has been bandied about here, I think that's about 7 or 8 percent of the total cost.

Lawrence Weiss: I was going to make that point that even a 50 percent increase in the cost of raw material would work out to maybe a 10 percent increase in the price for the steel for the job because the erection and fabrication are larger factors. In my 30 years experience, steel has been the one commodity that has remained stable and, if anything, has gone down in price. It's been remarkable to me how stable it's been and, of course, it's due for some escalation over the year and I think the time has come.

Higbee: Alan, you mentioned not backing away from traditional pricing methods. Has that been your experience with other clients?

Paull: No, most clients would rather lock in the cost. They would rather shift the risk to the contractors. This is just a unique client who's used to taking risks and is willing to bet on the price.

Hiller: We have a lot of public work, and that becomes an issue. We sort of worked out a deal with a public authority on the west coast where we are indexing. The problem with this job is it's a public job. They're not going to buy steel for probably six months. So that's a bit of a gamble.

Weiss: I believe the Dormitory Authority (of the State of New York) has at least one job with an indexing. With the Queens Hospital project, the steel was awarded based upon current prices with an adjustment upward or downward.

Paull: The only problem we saw was one contract we awarded in December that was an issue and that one happened to be with corrugated steel sheet. But everything else seems to be okay.

Hiller: We've had a number of people coming back to us pleading for help. By and large, we're trying to work that out with them. If it's $20,000 we don't worry about it but in some cases it's been $1 million and you're faced with a lot of negotiation. It's not a slam dunk even though you have a firm price.

Paull: There is legislation pending in Albany that would give relief for public jobs. It's being pushed by the General Contractors Association in New York. They're hopeful that the governor will sign it before long.

Higbee: Apart from indexing, are any other methods being practiced now?

Paull: We're hearing about a shortage of four-inch plate. We're hearing deliveries well into the fourth quarter.

Hiller: On rebar as well.

Paull: We don't know exactly what that means. Maybe a couple of gentlemen here can elaborate.

Just the four-inch, heavy stuff. The heavy plate. Plate is primarily a function of the integrated process, not so much the electric arc furnace process. There have been some integrated mills that have shut down those facilities over the past several years.

Neil Wexler: If I may add to this, the cost of light gauge metal has gone up even more significantly perhaps than rebar or structural steel. That is significant because light gauge metal goes into all buildings whether they are concrete or steel framed. And, subsequently, at least in my practice, I've had a number of developers ask us to design the building the old-fashioned way with structural steel framing in lieu of a light gauge floor. This is happening on a number of different projects, market rate facilities. Not the high-end or affordable projects but the market rate.

Hiller: We've had a lot of problems with steel studs and partitions, because those are awarded pretty early. They don't come to the job. So, a lot of those people have been caught. (to Paull) I don't know if that's been your experience or not.

Paull: Other people in Tishman have been working on that. I have not heard that directly.

Hiller: I know I see lots of letters and these guys are pleading for relief. I'm not sure how that works but it has to work somehow.

Higbee: Jeff, Neil mentioned alternatives here and I wondered how, with what you're experiencing, across-the-board commodity increases are affecting that decision.

Jeff Smilow: I have a little different perspective. On our current projects we see what you guys have mentioned - a significant increase in steel costs, approximately a 10 percent increase in steel price. We're also seeing a significant increase in post-tensioning material on our projects but not so much in the New York City area. Clients are asking us, in the concrete projects that have post-tensioning, to go away from post-tensioning and go back to conventional reinforcing, even though there's a significant increase in rebar. We're also seeing outside the New York market, shortages in other materials like cement. With steel, I call it the fear factor. The developers have this fear factor from years of issues with steel and now this problem. So they turn to us in fear. The new issue besides cost is there's a significant reduction in suppliers. Fabricators are going out of business. There aren't that many bidders. When we start the early design of projects, developers ask if we can go concrete. Sometimes we'll go through a number of studies on using a non-traditional material for a particular usage. But we always get back to the traditional material at the end because leasing issues and practical issues control the project. But what's interesting, in the overall scheme of things, is there's been less steel projects in recent years. There's a lot more concrete high-rise buildings and a lot fewer suppliers. There is a big fear now with all the stadiums coming on board in this town. The tonnages are dramatic in those projects. The percentage of the total cost that structure contributes to the project is much greater than the conventional office building. So, there are big issues there, especially when you have significant government involvement in those projects. We're trying to get into innovative techniques for dealing with these issues - from the designer. These techniques have not been used traditionally in the steel design but have been used in other trades. With curtain wall, for years, you bring in a curtain wall supplier early on and coordinate more closely and tailor the drawings to a specific type of curtain wall system.

Hiller: Jeff, as far as curtain wall is concerned, I'm sure I'll agree. Edge of slab is one of the most… Edge of slab is difficult. One of the big problems with this structure is that you slab the side. And we try desperately now, on our major curtain wall jobs, to award the curtain wall on a design assist basis because it's a longer lead time than steel.

Paull: Curtain wall is even worse because there's only, like, three major suppliers in North America, so… It's not like we have five or six firms who are willing to come into New York. With curtain wall, there's only three.

Hiller: Yeah. That's much worse.

Smilow: We try to bring in a steel fabricator early. With projects that we've had that early involvement, we've had the ability to tailor our details to that fabricator's method of detailing and connecting. It dramatically cuts down the delay in shop drawing, the RFI process, et cetera. It leads to a smoother flowing job. But all of this, of course, relates to the general problem of cost increases because it's not just material. If you delay a job six months, labor costs are going up at every step along the way.

Paull: I'd like to discuss that. We're finding more contractors want to come to New York because we have a lot more work here than the rest of the country. But one of the problems with steel is the predictability of getting into shops. Why is our predictability at the shops bad? It's because we can't predict when we're going to get to our shop drawing phases. And why can't we get to shop drawing phases? Because the geometry isn't set. We're now into diagrids, we're now into building undulating. The computer programs have gotten sophisticated enough that the designers can design anything. They don't design boxes anymore. And it's becoming very apparent to us that the AutoCAD just isn't sophisticated. It doesn't work to the level of detail that's required of fabricators. If you ask the engineers to both sides of me here, they're not going to spend a lot of time designing beams. If a beam is within two or three ft., they're happy. The fabricator needs it within a 32nd of an inch. What's becoming apparent is that there needs to a detailing effort where we would model using an X steel system, model the geometry. That someone would model the system, model the geometry, and hopefully drive out 90 percent of our RFI problems.

Wexler: I couldn't agree with this more.

Paull: I think that's cheap money. It's cheaper than the designers doing it. The AutoCAD is not the way to go. We should bid the documents based on an X steel model. That makes estimating faster. It makes material ordering faster. And I'll even argue that maybe we should detail the jobs. On this side of the coast we don't detail the connections. You talk to the fabricators and they know what they're going to want to do. We know they're going to want to use single-sided connections on beams. We know they're going to want to bolt as much as they can. I don't see a big problem in drawings coming out completely done.

Wexler: I agree with that fully and let me tell you why.

Hiller: I take issue.

Wexler: Computer software technology has reached the point where detailing is no longer the old art of developing shop drawings from dimensions and the like. The software has developed to a point where detailing has become an engineering job. An engineer can very easily detail the project with his engineers with the current software. And the new software that is about to come in, in what's called a 3D model. A 3D model is a single piece of software, which is being used by engineers for design purposes, for drafting purposes, for building department drawings and bid drawings. The very same software is the software that's giving you the details. If you can see it in 3D in the computer, you are guaranteed to be able to build it and it will fit like a glove. Let me just point out that the software is not totally available in this form. It is being worked on.

Higbee: Both you and Alan have talked about this thing. And I know AISC has been a champion of electronic data interchange and works with the software developers. But the way you're describing it, as if it's something that's not working out.

Hiller: Well, let me just comment. I agree with Alan, that modeling and so on is important, but I really believe that the actual detailing needs to stay with the fabricator, for several reasons. If you picture a horse, the head of the horse is the detailing. The work is the fabrication guy. I think he needs to control that. He needs to be comfortable in doing that. In addition to that, I think, Neil, you might have a liability issue here. Detailing away, if you do something wrong, the fabricator's going to own you. And there's a lot of possibility there in what you're discussing.

Wexler: Well, I…

Hiller: The final detailing.

Wexler: Our office is working with you. All of our work is coming from developers. And the developers have worked out this problem. And so, and as far as having the detailers in the steel fabricator's shop, that problem too has been solved. The current software is tailored such that you are able to input the various builders and steel fabricators, by their preferences, into the computer. So when you start a project, you are able to tailor it for one steel fabricator, or another. Imagine a three dimensional glass box. You will be able to see, in a very short time, your building in 3D on a glass box, with all of its features, stairs, walls, elevators, and the rest. And if you like it, you will be able to build it paperlessly. That's where this is going now. And so, while we're not there yet, parts of this are already working.

Hiller: Neil, I think you're envisioning something for the future. Right now with drawings from the engineers and architects, there are disparities and a lack of coordination. We've got a long way to go before we can think of undertaking the detailing. The other factor with detailing is you're overlooking the role of the erector. When we get involved in the job, we spend time with the fabricator and the detailer is telling them the way we'd like to see the connections.

Higbee: We're having this discussion to address steel price increases. So, I'd like to start wrapping up here.

Hiller: Our experience, and I think Alan will agree, is that the spike in steel is dying. I don't think it's going to be anything like what it's been. And people are now not indexing because they feel comfortable.

Paull: Contractors don't want to index.

Hiller: There's a comfort level. Hysteria has died down. Availability, except for some heavy plate, is a non issue. Deliveries are a non issue. So that's our opinion. We have a very big project in Chicago that is a steel podium, a very tall high-rise, with a concrete top. The developer is worried about what's happening with steel and is looking at converting to concrete which is totally wacky.

Paull: I thought concrete has problems too.

Hiller: Concrete is cement. That is another issue. Nobody knows what's happening with concrete.

Weiss: More than price, it's availability.

Hiller: At least in steel we knew. We didn't know exactly but we knew there was a disaster, $20 a ton. With concrete we can't even get an answer. It hasn't quite hit New York. It's hit other parts of the country.

Paull: In Florida, I understand the plants are only working four days a week.

Hiller: I'm told that in New York now that if anything over 200 yards, you have to negotiate. How does that affect the two-day cycle? I mean, it's dead.

Wexler: If I may add something, I find that in the New York area, particularly for mid-sized projects, there is a lack of erectors who are willing to bid and participate in the erection of steel buildings.

Paull: Actually, competent erectors.

Wexler: I find that there is a lack of such erectors.

Hiller: Well, you know…

Wexler: The second point is that often structural steel, particularly for mid-rise buildings, benefits tremendously from a concrete floor, such as a pre-cast concrete floor. The marriage is very beneficial for steel buildings. I find that erectors, if they are willing to erect a steel building of mid-size, they will have a hard time erecting the plank floors.

Hiller: No, no, no.

Wexler: This I find to be very consistent of my clients.

Hiller: It's impossible.

Paull: I would tend to disagree. I found no shortage of competition.

Wexler: I admit that. I skipped…

Paull: We are such a big player, just as Bovis is a big player in the market, so when we go to our contractors and say, you have to bid on a 750 ton job, it goes without saying that we need you to bid on this if you want to bid on the 20,000 ton job. So, we get our very big players going after these smaller jobs because of our force in the marketplace. And I'm sure, Ken has the exact same…

Hiller: We insist that when you have a job with plank, of course the steel erector has to erect it all. If you don't, you'll never get the job done. Secondly, we really insist that the steel fabricator assume the responsibility for the planks, so it gets there on time. It's all in one.

Paull: It's just treated just like metal deck.

Wexler: In the last five years or so, my office has done over 100 buildings with structural steel and various types of floors in the New York Area. I'll give you some examples: West Street, Dwayne Street, West Street and 13th Street, Sullivan Street, West 19th Street, West 23rd Street, East 112th and so forth. These are all buildings of magnitude between 100,000 and 200,000 sq. ft. of residential character at the top and with mixed use often community facilities, parking, retail, and the like. By and large, the problem on these buildings has been qualified erectors.

Smilow: Well, let me say, from my point of view, we've done some plank jobs on steel. The problem, again, lies with the detail. A plank detailer never looks at the steel details. They don't see gussets, they don't see bracing, they don't notch their plank to handle it. So, the plank becomes a more difficult item.

Higbee: We've run out of time so I'd like to end here. I'd like to thank everybody for coming.