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Costs go through the roof

Contractors are scrambling to make up for the escalating prices of nearly everything: steel, iron, drywall, concrete.

By BENITA D. NEWTON
Published May 5, 2004

ST. PETE BEACH - Even though Tom Stevens III has been a contractor for eight years, building his new home has been an exercise in patience.

First he watched as steel rebar doubled from about $4 to nearly $8 a piece. Then the wood he was using in his flooring system spiked by 40 percent. On Monday he learned that supply problems would delay delivery of a shipment of concrete, a product whose price has been climbing.

"Concrete has been the one thing that has been really stable. Now that's changing, too," said Stevens, president of TFS Building Inc in St. Pete Beach. "We won't be able to make the progress we had hoped to. It's an inconvenience."

But the rapid fire attack on his bottom line has been more than a nuisance. A few months into construction, his $150,000 building plan is looking like it could cost $200,000.

The rise in prices of commodities such as steel, cast iron, plywood drywall, copper and concrete is sending a wave of change through the construction industry. Contracts are carrying shorter expiration times, price indexes are being added to state road work and companies are straining to absorb the costs for fear of losing business.

A building boom in China is seen as the chief culprit, swallowing up inventories and driving prices higher, particularly in recent months.

For instance, the composite price for structural panels (which includes plywood) has risen by 131 percent, from $259 to $598 per thousand square feet, according to Oregon-based industry price tracker Random Lengths.

Add to that blistering gasoline prices, for which some companies are surcharging $2 to $5 per delivery, and doing business in the construction industry is getting more expensive.

"Thank God I'm building for myself," said Stevens, who has taken six months off to build his home. "If all of this had happened after I contracted a price with a customer, I'd be in big trouble."

Others have not been quite so lucky. Businesses like Tampa commercial contractor Airite Air Conditioning Inc. have had to absorb the additional costs they've incurred after agreeing to prices months before the commodity costs started skyrocketing.

"There's nothing else we can do," said Airite president Bruce Silverman. "The contracts don't allow us to raise our prices."

Silverman has been able to protect his profits some. He ordered 200,000 pounds of galvanized steel as soon as he saw the prices going up, and he has been using that for the past several weeks. He has also instituted an expiration clause for his bids; buyers now have seven to 10 days to lock in a bid price.

"These are the highest steel prices we've ever seen," said Silverman, who has worked in the industry for 33 years. "When I first started, sheet metal was 8 to 10 cents a pound. It took more than 30 years for it to triple to the 32 to 36 cent range, where it was about six months ago. Now it's in the mid 50 to 60 cent range."

The Florida Department of Transportation recently implemented a steel price index for its contracts to account for increases in project costs. Once material is delivered, contractors can refer to the base index price during the month the job was bid and receive an adjustment for some of the difference, said Ananth Prasad, director of the DOT's department of construction. The DOT has similar provisions for fuel and liquid asphalt.

But it's not so simple for private contracts. Larry Lawson, vice president of the Tampa division of Randall Mechanical, has been inundated with apologetic letters from suppliers warning of double-digit price increases in products by midsummer. Although the increases have been frustrating, Lawson said he doesn't expect them to impact his business significantly.

"It's a tight market anyway," Lawson said. "You've got to be low to get the job, and to be low, you're taking the most risk. But this isn't something that any of us can absorb for too long. It's going to be passed along to the consumer eventually."

The price volatility is tough on those further down the supply chain, too. At Big C Steel in Clearwater, the price of some of its raw steel products has doubled, increasing the cost of the end product by 15 percent, said president David Cox. Cox has been able to pass the cost along on some jobs thanks to understanding clients, but the rest has had to come out of profits.

"It's going to hurt us," Cox said. "There's only so much we can add onto the price because there are substitute products for steel. We have to stay in business."

Eric Carroll, operations manager at Carroll Building Materials in St. Petersburg, has been getting more customers coming through the door since other companies have been unable to fill their orders for concrete. He has increased the number of weekly shipments from one to three, but it's still not enough. Some of his suppliers have implemented allocations for how much can be ordered and he has had to scramble to meet demand.

"We're trying to get a different kind of cement, and we're hitting every single company we can to find enough," Carroll said. "That's really all anyone can do, but it's scaring a lot of our customers."

- Benita Newton can be reached at bnewton@sptimes.com or 727 893-8318.

[Last modified May 5, 2004, 01:00:41]

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