Messer Senior Vice President and COO Mark Luegering shares perspective on steel and aluminum tarrif's impact on construction (interview published on June 6 by WCPO).
You can also read the following article by Matt Verst, Messer Cost Planning & Estimating Vice President, that provide additional insights on tarrifs (before they took effect).
If you’re at any stage of a build, whether you’re planning a new patient tower, designing a bridge or finishing the top floor of a new corporate headquarters, the announcement of a new tariff on steel and aluminum probably caught your attention.
Since the President’s announcement in early March, everyone involved in construction has been working to understand how the proposed tax on imported metals will affect project budgets. I get questions about it on a daily basis, and my Cost Planning & Estimating team at Messer has been watching this closely.
Based on what we know (and what we’re still waiting to find out), here are some important things to keep in mind if you’re worried about these tariffs.
It’s crucial to keep this news in perspective: The 25% increase on imported steel (and the 10% increase for aluminum) will translate into a 25% increase in cost.
You have to think about how much steel and aluminum actually goes into each building.
Since the announcement, we’ve been analyzing our construction projects to make sure we fully understand this. As an example, about 6% of one project’s budget includes steel. If the cost for those materials go up 15%, that 15% increase is actually only affecting 6% of that particular project. So, while the dollars impact may not be insignificant, the overall budget impact will not be anywhere close to 25%.
It’s helpful to look at the big picture perspective on the industry. Here are a few facts that are important to remember:
- About 30% of the steel consumed in the United States (115 million metric tons) is imported.
- Of that 30%, many of the importing countries may be exempted from the tariff.
- As of today, about 25% of imports are exempt from the tariff (and others may also be exempt, including the EU, Japan, and other allies).
In other words, most of the steel used in the industry won’t be subjected to the tariff taxes. The fact that about 70% of our steel is made within the borders is significant—and we do actually have enough steel-making capacity within our borders to meet our current demands.
At the same time, there are companies submitting for waivers in scenarios where certain products cannot be made in the US, for example, and other negotiations are in progress that may further curb the tariff’s impact.
We keep in close touch with manufacturer and suppliers as part of the cost planning process, and it’s been interesting to see that our steel and aluminum friends were actually aware of these trade plans several months before the tariff was officially announced.
We’ve also seen the cost of structural steel escalating since the end of 2017. That increase has been to the tune of about 15%, indicating that steel companies had already been preparing for the impact of the tariff before it was widely known.
In other words, the bulk of the tariff effects may have already hit us.
The big upcoming date is now June 1. This is when the tariff deals come into force. (It was supposed to be May 1, but the White House another 30 days while deals are finalized.) In the meantime, certain countries are currently in trade negotiations with the federal government (South Korea, Canada, Mexico and the European Union, for example), some metal manufacturers are posting price increases, and everyone is trying to understand how this will impact their bottom line.
It’s safe to say that there will be some volatility in the market, at least until the President makes a final decision on various negotiations. We expect another round of price increases in the coming weeks as the impacts of the tariffs are recognized—but we also know from experience that prices tend to come back down to reality as the market settles down.
For now, the best advice I have is to stay calm and . The sky isn’t falling.
At Messer, we’re well positioned to deal with events such as these. We take an approach (one that I think is unique) where we aim to protect the client from unforeseen cost hikes as much as possible. Ideally, we are involved early in the design process to lend guidance to material selections. Our design-assist subcontractors bring strong material supplier relationships and can update the team on a day-to-day basis.
We’ve seen these unexpected events in the past (such as big cost increases post-Katrina and post-9/11) and we’ve responded well. We’ll respond in a similar fashion this time, too.