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According to recent OneSteel publications, the global cost increases in steel will continue to have
great impact on the industry in 2008/09. Steel manufacturers are experiencing unprecedented price
rises for the key components of steel, including Iron Ore, Coking Coal and Scrap, as well as the energy it
uses for production and transport costs.
What has caused the increase in steel production costs?
- Crude Steel Growth – since 1999 the growth in steel production has been explosive, placing
pressure on suppliers to meet the demand globally.
- Increased Scrap Costs – the International Iron and Steel Institute forecast a global shortage of
scrap by 2012.
- Increased Coking Coal Costs - European and Asian steel mills have agreed to a trebling in
premium hard coking coal prices to around $US305 a tonne, with record prices being set at
$US330 a tonne.
- Increased Iron Ore Costs – some reports suggest China's smaller steelmakers have accepted a
95% rise in annual iron ore prices.
Other issues:
- In the past, China was a net exporter of coal but over recent years, consumption has increased
so much that China has turned into a net importer. Also, the upcoming Beijing Olympics has
caused steel production to slow considerably as the Chinese prepare for the games.
- The impact of Queensland floods earlier in the year are also being felt at home and overseas,
with at least 15 million tonnes of coal in lost supply in 2008 alone.
What does this mean for the construction industry?
No good news unfortunately. Obviously with all the input costs of steel production continuing to
increase at previously unheard of rates, the impact in both the short and medium term will be sharp
increases in the costs of all steel products across the industry. Being such a versatile and widely used
material, cost increases tend to affect a significant number of trades involved in any given project.
Reinforcement and structural steel are the obvious two, with suppliers already issuing price increase
warnings to major accounts detailing three upcoming price rises due to the increased costs of
manufacture. These cost increases in turn will impact virtually any material with a steel component
including hand railings, post tensioning, windows, steel wall framing, lintels etc.
Similar effects are felt in services trades with supply costs of hydraulic pipework, electrical cabling and
mechanical ducting all working to drive construction costs up.
How do you protect yourself?
Be informed and be prepared! Imminent price rises in construction costs can be anticipated with
sufficient research into supply and labour markets. BMT & ASSOC continually liaise with industry contacts
in order to stay ahead of potential shifts in pricing. We utilise this knowledge to keep our clients
informed and ensure the projected costing of the development remains in line with market conditions.
Builders and developers should always attempt to fix supply pricing early on a project and never
assume that previous or even current pricing will be available in six months when the order is ready to
be placed. With the anticipated steel price increases, current prices are set to increase by a further 25%
in the next 12 months which has the potential to adversely impact a project’s feasibility.
Prices will rise whether you are expecting them or not, so being informed and prepared is the best
defence for your investment. When you are a BMT & ASSOC client, you will be assured of having the
most current and accurate prices incorporated into the cost estimating of your project, along with the
knowledge that BMT & ASSOC are aware of market conditions and have forecasted for potential cost
increases. Please contact Brad, Brendan, Tom or Pedro at the office for further information.
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Recently Completed Projects
Location: Peakhurst, NSW
Project type: 8 double storey townhouses
Approx. Construction Cost Per m2: $2,050/m²
Location: Macleod, VIC
Project type: 6 double storey townhouses
Approx. Construction Cost Per m2: $1,086/m²
Location: Baulkham Hills, NSW
Project type: Additions to Motel
Approx. Construction Cost Per m2: $2,657/m²
Location: Spring Hill, QLD
Project type: 6 residential units
Approx. Construction Cost Per m2: $1,900/m²
Location: Doreen, VIC
Project type: 3 double storey townhouses
Approx. Construction Cost Per m2: $1,400/m²
Location: Golden Beach, QLD
Project type: 12 storey residential development
Approx. Construction Cost Per m2: $1,850/m²
Location: Greta, NSW
Project type: 27 lot residential subdivision
Approx. Construction Cost Per Lot: $38,000 per lot
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Disclaimer: This information should be read subject to the following conditions:
• Information is published as a matter of interest only and is not intended to be relied upon by readers. In any situations which may be similar to matters herein readers should exercise and rely upon their own judgement.
• Neither BMT & ASSOC Pty Ltd nor any of its officers or employees bear any responsibility for any error in the material published in this publication or in any previous publication, or for any damage or loss resulting from any reliance on any material published in this publication or in any previous publication.
• This newsletter is issued as a helpful guide and is not intended to, and does not cover all aspects of the topics discussed. Professional advice should be sought before any action upon these topics is undertaken.
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