Rising steel prices cause contract woes.Skyrocketing steel prices have prompted the construction industry to consider including warnings in customer contracts. Some in the industry are considering including an "escalation clause escalation clause n → cláusula de reajuste de los precios escalation clause n → clause f d'indexation escalation clause n " in contracts to try to recoup their costs. "The clause would be recognized by both parties that the price of steel is undergoing unusual price increases now that would have an affect on the contract," said Gary Higbee, director of development of the Steel Institute of New York New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of . The move comes as China's demand for scrap metal to feed its burgeoning automobile manufacturing industry has driven the price from $120 a ton to $255 a ton within months. In 2001, the United States United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. exported 7.44 million metric tons of scrap. Last year it exported 12 million metric tons, with China buying 3.3 million metric tons. China's demand for scrap increased 22 percent last year and is expected to increase 13 percent this year. Since last fall, steel prices have drastically increased, due in part to China's booming industrial economy. "With the automobile industry in China China's automobile industry is in rapid development since year 2000. In 2006, 7.189 million motor vehicles were manufactured in China, making China passed Germany as the third largest automobile maker. heating up, prices have risen," said Gary Higbee, director of development of the Steel Institute of New York. The price increase is creating a ripple effect ripple effect Epidemiology See Signal event. . "It is chaotic at the moment. We have letters going out to clients, interoffice in·ter·of·fice adj. Transmitted or taking place between offices, especially those of a single organization: an interoffice memo; interoffice conferences. memos ... It's a soap opera soap opera Broadcast serial drama, characterized by a permanent cast of actors, a continuing story, tangled interpersonal situations, and a melodramatic or sentimental style. ," said Ken Hiller, senior vice president and chief engineer of Bovis Lend Lease, referring to the spiralling prices created by the supply and demand environment. "We are trying to get reimbursed from our clients. The prices we are getting from our subcontractors have all sorts of disclaimers." "It's a real mess," said Barry Fries, CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. of B.R. Fries & Associates. "Our suppliers can sell it at a higher price overseas then they can in the states. As long as China is going to remain a big consumer of metal it will continue. It is causing an inflationary trend." But steel executives say because of technological advances in steel production, prices in the past have not kept up with inflation. "Because of the use of scrap metal, they have been able to keep prices at 1970s levels," Higbee said. "The deal was, they used recycled metal." Last summer, steel scrap was selling in the $120/ton range. By the fall, it had gone up by one-third, to more than $160/ton, and by mid-February it had exceeded $255/ton, according to the American Institute of Steel Construction, Inc. It will continue its upward climb, said Scott Melnick, AISC AISC American Institute of Steel Construction AISC Army Information Systems Command AISC Assessment and Information Services Center AISC The Art Institute of Southern California AISC Academic Information Services Cooperative vice president of communications last week. "We are looking at price increases through mid-summer," Melnick said. "Keep in mind this affects all steel, nails, siding and rebar re·bar n. 1. A rod or bar used for reinforcement in concrete or asphalt pourings. 2. A group of such rods forming a grid. [re(inforcing) bar.] , anything made out of steel. Even if concrete is the alternative, rebar will also cost more." The problem for the construction industry is quoting prices for jobs. "Steel manufacturers are not giving final prices until you buy the steel," said Lou Coletti, president of the Building Trade Employers Association. "When contractors give a bid, they can't give a price at that time. They can only give estimates. It is throwing the final bid all out of whack." Steel producers say there is no way to lock in the price. "Steel prices are rising drastically and capriciously. Because of the rapid increase you can't guarantee a certain price," Higbee said. The costs, of course, are passed onto clients. "Looking at an average job (structural steel) it looks like an increase of 4 to 5%," said Hiller. "Concrete will be a bit less, because steel rebar is less of a component. It's about 3%." Some in the industry are recommending that an "escalation clause" be included in contracts. "The industry is looking for Looking for In the context of general equities, this describing a buy interest in which a dealer is asked to offer stock, often involving a capital commitment. Antithesis of in touch with. an escalation clause," Higbee said. "The clause would be recognized by both parties that the price of steel is undergoing unusual price increases now that would have an affect on the contract." Companies have no alternative but to do just that or eat the cost. "We are holding our prices for 30 days," said Fries. "After 30 days, we have the right to review our prices." |
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