Construction firms caught in steel trap

24 May 2010

25 May 2010 | Andrea Klettner

Steel fabrication firms in the construction industry are being forced to take on greater risks when selling products to building firms as buyers struggle with increasingly volatile prices.

Corus, the main supplier of raw steel in the UK, has issued price increases for May and June, with further cost rises expected in July.

The move has caused concern among the supply chain. One buyer at a steel construction firm, who asked not to be named, said: “We’ve been hit with an £80 per tonne increase for all deliveries after 30 May, and the same again for the end of June.”

In March SM reported a new worldwide deal between mining companies and mills, which saw prices for iron ore – which Corus purchases to make its steel – increase by as much as 80 per cent to about $110-$120 (£71-£78) a tonne.

Following the agreement, the market moved from the system of fixed-price annual contracts – which had been in place for 40 years – to quarterly contracts linked to the iron ore spot market. A director at another international steel firm said uncertainty of future costs was driving the risky market.

“Corus can’t give us a long-term commitment, and with tenders in general taking around nine months, we are having to work out how to distribute the risk between us and the main building contractor,” he said. “Contractors just don’t have enough sway with clients at the moment to negotiate the risk on to them.”

Other firms are buying steel in bulk and negotiating deals with stockpilers, who can hold the metal ready to be used on site as necessary.

Corus refused to comment on pricing changes.

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