Customers no longer waiting for price rollbacks
What’s up with metal buildings? Manufacturers seem to agree that steel prices are again on the rise and the availability of steel from the mills may tighten in the future. But they say that, just as consumers are reconciled to the end of cheap gasoline, building customers who desire the structural qualities of metal are no longer delaying their construction needs in hopes of a price rollback.
“After spiking a couple of years ago, steel prices flattened for awhile,” reports general manager Martial Thevenot of Perka Building Frames in St. Joseph, Mo., “but in the last six months we’ve been getting price increases of 2 or 3 percent every month. In terms of the rate of increase, steel has caught up with and passed lumber. Also, the availability of steel is fairly good right now, but I hear it may be tightening.”
One reason that prices are now rising and supplies may be tight, believes Thevenot, “is because there are fewer steel mills now in the United States, and a number of scrapyards have gone out of business.”
Perka’s niche is industrial and commercial buildings of between 5,000 and 10,000 square feet; the company offers a hybrid product of wood over a metal frame. “For us, the metal building market is up overall,” continues Thevenot, “though that’s an average, since some regions are up but others are down. For example, churches are up and warehouses are down. And in rural markets there’s an increase in metal building activity for residential uses but a downtick for commercial uses.”
Because metal buildings held up well in areas hit by natural disasters, adds Thevenot, “we’ve gotten a lot of inquiries from those parts of the country that have been affected.”
A strategy that metal building manufacturers have employed to contain price hikes, notes Thevenot, is the use of increasingly sophisticated computer-aided design. “We can be more accurate,” he explains, “and we can do more value-engineering. That means the owner might be able to use less steel or waste less steel, and then end up with a building that’s more energy-efficient.”
Along with concerns for energy efficiency, Thevenot reports that metal buildings are now being designed with more awareness of the need to prevent mold and mildew. Design is also being impacted by the nationwide move toward adoption of the International Building Code. “It has raised the bar in some areas of design and construction,” he says, “but on balance the code is a good thing because we now have more standardization.”
No Price Decrease Seen
Rising steel prices also are reported by Dick McInturf, building products manager for the Agri/Industrial Division of Chief Industries based in Kearney, Neb. “Two years ago prices went sky high,” he recalls, “and now this year we’ve already seen two or three price increases. Our company doesn’t see any eventual downtrend in steel prices, and when we provide quotes for customers, we’re running into competition from post-frame and stick-built construction.”
McInturf’s division provides all-steel and wood-and-metal buildings for grain handling and storage, as well as for light industrial projects and for residential storage and shop buildings.
“The commercial and industrial side has been up,” he observes, “but the agricultural market has been down, due to the higher fuel costs and the overall economics that farmers face right now.” Chief’s agri/industrial division, he adds, is mostly active in the Midwest.
Though wood may be less expensive than metal for smaller buildings, McInturf contends that steel buildings cost the same or less than wood for larger projects. “A lot of end users are pricing wood against metal since they’ve heard that steel has gone sky high,” he points out. “But on the other hand, many users just prefer metal buildings because they’re sold on the quality and longevity.” That’s also a reason, he suggests, why “there are many opportunities right now, in areas hit by disasters, to replace destroyed buildings with metal buildings.”
For the present, McInturf reports that steel availability is good and “only Galvalume has been a problem so far.” He agrees that general adoption of the IBC has been a boon to the metal building industry since “the manufacturers can all follow the same code, which puts everyone on the same page and helps us compete.”
Metal building design for rural markets is responding today to the demand for “more buildings with more aesthetics, even on the farm,” McInturf relates. “We’re definitely getting more requests for fancier buildings. So as a metal building manufacturer we’re adding more aesthetic options.”
Beating the Next Price Hike
Because steel prices doubled two years ago, but at the moment are only rising incrementally, “that’s actually prompted a spike in metal building activity as customers do their projects now, so they can beat any future price increases or spikes,” asserts general manager Tom Chaney of Liberty Building Systems in Bartlett, Tenn.
The six-year-old company manufactures light industrial and commercial metal buildings generally in the 8,000-square foot range, though some commercial projects have topped 80,000 square feet. Liberty’s agricultural buildings also range up to 300,000 square feet. Contract values start at about $10,000 and have exceeded $2 million.
Chaney can sympathize with customers’ fears that another price spike might be just around the corner. “The rise in steel prices during 2004 was the worst I’ve ever seen in 35 years in the business, as far as the instability and the escalation,” he points out. “Now in 2006, prices are edging back up. But we think the increases will taper off after the initial increases, so we’ll have more price stability in the second half of this year.”
Nevertheless, even when small price increases were announced earlier this year, that prompted a noticeable jump in building activity. Chaney expects the upturn to be temporary and that activity will moderate as the latest round of price increases runs its course.
Other than the recent spike in building activity by customers who want to beat future increases, Chaney reports the “metal building market has been pretty flat the last year. Not only are steel prices rising, but so are energy costs and freight costs.” Where lumber may have once seen a disproportionate climb in prices, “now the price increases are shifting back to metal,” he says. As for specific building markets, he reports that industrial construction has been weak but the commercial and agricultural markets have been strong.
With perhaps 95 percent of the cleanup now completed in areas affected by last year’s Gulf Coast hurricanes, Chaney says a spin-off opportunity is emerging for metal builders. “People saw that metal buildings survived better than wood and had less mold,” he observes. “Now these people are moving further inland, away from the coast and beyond the flood plain. So as the inland communities start getting more built up, there’s an opportunity to sell metal buildings in these areas — not only for residences, but also for stores and churches and other facilities that will serve these new towns and population centers.”
As for the availability of steel, at press time Chaney expected that some of the mills will put their customers on allocations by the end of the summer. “We’re already seeing that some rollings for August and September are filling up with orders,” he says. “For manufacturers like us, you’ve got to be smart in your predictions and it’s important to have good relationships with the steel mills.”
Chaney points out that zinc, which is used in substrates and panel coatings, is currently in short supply due to strikes at zinc mines and for other reasons. “So we’re being charged more for coated metal coil,” he says.
Because rural markets comprise about 80 percent of Liberty’s business, the company has recently added a new “EasyBuild” product line of easily-erected pre-engineered metal buildings for farm uses, equipment storage, small retail, church, and community uses. In addition, a new “AgMaster” line incorporates standard options preferred by farmers such as sliding doors, wider openings, and high-load-bearing structural members from which hoists can be hung.
As for the future, Chaney predicts a good and stable market for metal buildings. “For one thing,” he says, “in rural areas we keep seeing a demand for bigger buildings, whether it’s corporate farms, equine facilities, or self-storage.” The latter, he believes, is a particularly good market for rural builders. “I’m surprised at how much the self-storage market has expanded in rural areas. But as long as people keep buying stuff, they’ll need more storage space.”
Strength in Self-Storage
Self-storage is a specialty at Trachte Building Systems of Sun Prairie, Wis. National sales manager Jamie Lindau says the company manufactures some 7 million square feet of metal buildings per year, so the industry’s general adoption of the International Building Code has had a significant impact. “Things are more uniform now, which is good,” he explains, “but the IBC also takes some parts of other codes and makes them harder. So we’ve had to make sure all of our new buildings meet the code.”
The complexity of self-storage buildings also has been increased by the rising complexity of the self-storage business. “It’s gotten more complicated for our customers,” Lindau relates. “With land prices being high, they often have to construct wider buildings to maximize their revenues.” In turn, wider buildings can mean fewer driveways and, therefore, more complexity in providing access for renters. “But on the other hand,” he suggests, “if the need to get a higher return from your real estate means that buildings are becoming wider, that makes metal a better structural option compared to other materials.”
Many towns and counties are demanding that self-storage facilities undergo architectural reviews, Lindau adds. And with the general adoption of the IBC throughout the states, he says, rural builders can’t dodge the accessibility requirements of the Americans with Disabilities Act since these are written into the code.
As Lindau sees it, metal building activity is down nationally, even though Trachte’s own sales are up. “You’ve got some increases in steel prices, increases in concrete, and just general inflation,” he notes, which have depressed construction activity. Steel prices spiked in 2004, he reports, then eased in 2005 before edging up again in 2006. He attributes this year’s increases to rises in energy costs and in the price of zinc, which is used in galvanized products.
“The metal building industry has enough jobs in the pipeline to be OK through 2006,” Lindau predicts, “but 2007-08 might be a problem. Also, the availability of steel is pretty good right now, but the mills are getting a little worried.” Thus he advises rural contractors who sell metal buildings to be sure and choose a manufacturer “that has a good relationship with the steel mills, and that the mills know is a well-established company.”
Metal vs. Post-Frame
At El Dorado Building Systems in El Dorado, Kan., president Brad Cool and his team both manufacture and erect metal buildings. “About 50 percent of what we sell, we erect,” he explains. Mini-storage buildings comprise about a third of the company’s business, with the remainder split evenly between commercial and residential buildings of all types. Projects range from 30 to 150 feet wide and from $15,000 to $150,000 in value.
“Despite the continual price increases in steel, for our company the market is up,” reports Cool. He believes the reason is that metal building customers are now more informed about general price levels, have accustomed themselves to the realities, and now are ready to build rather than continue to hold off.
The suburban market has been strong for El Dorado “since people have money, buy their 10-acre piece of land outside the big city, and put up their storage buildings,” Cool reports. By contrast, he says the rural market — especially the agricultural sector — has “been slow for us and we don’t pursue it much, since farm buildings are a low-margin business.”
Like other manufacturers, Cool confirms that “steel prices are inching up again,” but he sees the current trend as a correction in the market, driven by “the limited amount of steel production facilities.” Yet he also sees a trend as “post-frame construction is growing by leaps and bounds, as it competes with metal buildings.”
The silver lining, though, may be the fact that metal and post-frame don’t really compete after all. Instead, the two products may reach different customers. “The people who order metal buildings really do want metal,” Cool contends, “whereas post-frame users really want post-frame.”
Cool notes that in the past two or three years “many rural areas and suburbs are now applying the building codes, where before they didn’t. It can seem like a headache. But when the codes are applied, that can also lead many customers to evaluate what they’re doing and choose metal buildings.”
While advancing technology in the building industry is generally a good thing, Cool does have one concern. “The Internet has muddled the metal building business,” he relates. “It’s easy for customers to get an online quote, but those quotes often aren’t complete or don’t match the right building to the customer’s need.”
Getting to the Real Issue
Though steel prices have risen, focusing on the trend misstates the issue, believes Nancy Roberts, corporate secretary for R&M Steel Company of Caldwell, Idaho. “Steel prices are up but it’s not outrageous, and the availability of steel is generally good,” she contends.
“But the focus shouldn’t be so much steel prices but on the cost-per-square-foot. Looked at that way, steel is a very cost-effective building material.”
Roberts adds that steel is the most “green” choice for building “because it’s made from mostly recycled material.” Moreover, she points out that steel is fireproof “and we’ve had customers whose buildings have suffered fires, and the structure came out okay.”
While R&M Steel keeps a close watch on costs per square foot, Roberts realizes that many customers have heard the talk about steel prices and so her company needs to provide answers. “Two years ago the Chinese were buying up all the scrap steel,” she says, “and since most steel in the United States is now made from recycled stocks, the prices doubled and availability was very tight.” But R&M had been around for 37 years and weathered many storms before. “So we didn’t raise our prices very much and were able to keep our customer base together,” she relates.
Before the 2004 price spike, Roberts continues, steel prices hadn’t risen in 15 years and were due for a correction. “And remember, energy prices have been rising across the board,” she explains, “and concrete and wood prices have been going up, too. Also, the price rises occurred at a time when interest rates were down, so that the long-term costs of putting up a new metal building — even with the price increases — was less than before the price increases.”
Now in 2006, though the availability of steel is good and R&M has good relationships with the mills, the company is still hedging its bets by keeping a little extra inventory on hand. R&M Steel manufactures custom-designed, pre-engineered metal buildings including airplane hangars, schools, agricultural facilities, warehouses, and restaurants. Its services are provided solely to non-residential markets and most projects are at least 40×50.
R&M is effective in serving the niche the company has carved out for itself. “For us, the metal building market is up and is very strong,” reports Roberts. “We’re very busy, even more than last year,” despite the latest round of steel price increases in 2006. In particular, she says the agricultural market is up, with the increased building activity paced by “the rise of hobby farmers and the big growth in demand for horse barns, riding arenas, and living quarters.”
Though customers are price-conscious due to increased steel prices, Roberts believes R&M’s commitment to providing custom-designed metal buildings actually provides an advantage over standardized packages. “We’re able to do value-engineering,” she explains, “so that you can use less steel or get more building for the same dollars.”
One reason for the growth in metal building, despite any price rises, is that “more people are simply becoming aware of the value and the structural advantages of steel,” Roberts advises. “Even so, the steel industry really does need to do more in spreading the word. But, honestly, we’re all too busy filling orders!”