Fence First

2008CONSTRUCTION companies big and small are feeling the pain of soaring steel prices, driven by sky-rocketing raw material costs such as iron ore.

Steel makers around the world saw their share prices plunge yesterday, amid concerns the price spike will crimp demand for their products.

Harry Triguboff, the property developer behind Meriton Apartments, said yesterday that building costs were being pushed higher by rising raw material prices, including steel, as well as increased labour costs.

"Similar to how petrol prices and interest rate rises have increased sharply in a short period of time, building costs will follow suit," he said.

"This latest increase in building costs will drive property prices skywards as developers look to recover the extra expense of building."

It is believed that Meriton will switch from using steel-frame constructions in a number of new projects and will use alternatives such as concrete, partly because of the recent price spike.

Neil Evans, national technical director of the Master Builders Association, said yesterday that the price of steel products had risen between 60 and 100 per cent in the past six months.

"The biggest problem for builders is that usually they have to sign up to fixed-price contracts and with those sort of exorbitant price increases it can really affect the bottom line at the end of the project," he said.

Shares in Australian-listed steel makers Bluescope and Onesteel fell sharply yesterday, dropping 84c to $10.30 and 34 to $6.78 respectively amid growing market fears over the impact of higher prices.

Vik Bansal, Onesteel steel and tub general manger, warned that higher steel prices represented a "significant step-change" for the industry.

"It is impossible to predict the end of the volatility," he said in Onesteel's July update. "However, market indications suggest that prices will remain at this higher end of the spectrum and demand will also remain high for the foreseeable future."

Local steel producers and their customers, however, are not the only ones feeling the pain -- their overseas counterparts are also being crunched.

On Wall Street, US-based steel producer Nucor Corp plunged on Wednesday night amid fears the slowing US economy and falling car sales will reduce demand for the metal.

In South Korea, the world's third-biggest steel maker Posco fell the most in nine months yesterday, on concerns customers would cut purchases because of higher prices.

And across the Yellow Sea, China's Shougang Group warned that its production costs would jump $US401 million ($A416 million) this year because of the 85 per cent increase in iron ore contract prices agreed between Rio Tinto and Baosteel last week.

Macquarie Bank chief commodities analyst Jim Lennon said recently that the only way to check spiralling steel prices was increased Chinese production.

"China is the only part of the world that has the ability to ramp up steel production to cover growing demand," Mr Lennon told a steel industry conference in London last month.

Soaring Steel Prices

July 04, 2008

Another steel price rise due on the 1st September 2008