STEEL HIKE STRAINS BUILDING SLATE OF PROJECTS HOSTAGE TO GLOBAL DEMAND, PRICES.

Byline: Eugene Tong Staff Writer

SANTA CLARITA - Building contractor Bob Lyon has been busy sharpening his pencil, trying to reconcile a recent spike in global steel prices and to contain costs in order to complete a string of projects on time and on budget.

``We are in a service business, so we have to provide a good quality service product,'' said Lyon, vice president of purchasing at Santa Clarita-based contractor Intertex. ``We have to go out and do a lot of extra effort to get more pricing - solicit more (subcontractor) bids to let the owner know we got the best pricing possible.''

Strong global demand for steel has placed a premium on the key construction ingredient, pushing prices up some 30 percent since January. For example, prices for rebar - steel rods used to reinforce concrete - jumped from $8 a foot to $12 a foot, according to local builders.

``This is a problem for the whole construction industry,'' said Jack Kyser, chief economist for the Los Angeles County Economic Development Corp. ``What you see is people going back and saying we need to redo the budget. In a couple cases, you are seeing projects put on hold.''

The problem is pervasive in Santa Clarita, where every group from school districts to residential and commercial developers have large projects.

Just last week, the William S. Hart Union High School District approved about $2.5 million in additional financing for its $11.1 million plan to build a Valencia High football stadium and renovate campus athletic fields. Officials cited rising cost for raw materials such as steel as the culprit.

Intertex, who built Princess Cruise's headquarters and The Promenade shopping center in Valencia, lost a bid to build a three-story medical office building, partly because of steel price hikes, Lyon said.

``It was a structural steel building with a lot of rebar,'' he said. ``We lost the job over it.''

Economists and industry watchers trace the problem to China, which has been buying up raw materials to help sustain its growing economy.

``A lot of the demand is coming from China,'' Kyser said. ``China is in the midst of a big economic boom and it's drawing in raw materials.''

Combined with steady demand from a domestic manufacturing sector just emerging from the economic doldrums of the past two years, supplies are stretched. Unless global demand weakens, steel prices are expected to remain high for the rest of the year and beyond, Kyser said.

``The outlook is based on what happens in China,'' he said. ``The Chinese government is very concerned they're looking at an economic bubble, and they're trying to slow down their economy. That could slow the demand. ... This could be something we're looking at for a couple of years unless new (steel-making) capacity comes online.''

For contractors, it's a balancing act to meet additional costs without blowing their client's budget. Most projects usually include a 10 percent contingency for unforeseen changes, with contractors stuck eating the cost beyond that.

``It's very precarious,'' said Tom Holsman, chief executive of Associated General Contractors of California, an industry trade group. ``The steel increase that has occurred over the last six months has devastated contractors ... The prices are eating into any profits they may have had. It's blowing right through their savings.''

Holsman said his group is devising standards for building owners and contractors to share the burden and complete a project.

``But it doesn't address the demand issue,'' he said. ``Ultimately, it'll be up to the private sector to develop mills to compete.''

Still, a slowdown for the construction industry appeared unlikely, with steady demand for homes and office space fueling new projects.

``The market will help absorb some of those cost fluctuations,'' said Ray Pearl, executive officer with the Building Industry Association of Greater Los Angeles. ``Again, it's the supply and demand issue. ... As long as the market remains strong, these are issues we can deal with.''

Lyon said Intertex is working on three new projects in town, despite rising material costs.

``These things go up and supply and demand keep the prices in check,'' he said. ``We hope it's a blip on the radar screen and things would settle down.''

Randy Wrage, who is developing a 90,000-square-foot steel-reinforced concrete storage in Newhall, also is undeterred by the steel-price hike.

``On a typical building, the steel is less than 10 percent of the cost of a building,'' said Wrage, a local construction consultant and project manager for EZ Access Self Storage. ``If it goes up 20 percent, it's a cost differential, but it doesn't kill the project.

``It comes out of our pockets. It just decreases our bottom line.''

Eugene Tong, [phone]

eugene.tong(at)dailynews.com