Report: Construction costs continue to increase amid tariff uncertainty
- April marked the 18th month that North American construction costs increased, reported IHS Markit, with uncertainty around steel prices as a result of the United States' recently imposed steel tariff.
- Prices were up in all 12 categories the IHS Markit PEG Engineering Construction Cost Index tracks, which pushed the index to 61.48, more than four points higher than its March reading. The price hikes for fabricated structural steel, carbon steel pipe and alloy steel pipe are being helped along by questions around costs and availability after a U.S. steel tariff of 25% went into effect last month. Imported aluminum was hit with a 10% tariff as well.
- IHS Markit said U.S. trade policy will likely impact future material prices but that market indecision about steel pricing should clear up when the U.S. issues its decision about which companies will be exempt from the tariffs. Major steel providers like Mexico and Canada already have been issued temporary exemptions.
Shortly after President Donald Trump announced the tariffs, U.S. contractors began reporting that their suppliers were starting to charge more for steel products, and as much as 10% in some markets. Also describing a negative impact as a result of the steel tariff were small domestic fabricators that rely on raw foreign steel, which is the target of the tariff. Some said they had lost business to competitors in other countries that don't impose such a high duty on the material, saving the end user from having to absorb the extra costs. Big U.S. steel companies, however, should benefit from this particular trade policy.
But how much a 25% tariff on steel will really impact the cost of construction is not clear. According to an analysis by Archinect, some estimates of how much extra contractors and developers will have to pay could be overblown. Using hypothetical projects and positing that the biggest impact on the construction industry will be in the category of structural steel, Archinect estimated that the average cost increase would not even reach 1%.
What could push costs higher, however, is the likely short-term inability of U.S. steel manufacturers to meet the demand created by the tariffs. Part of the ramp-up will necessitate reopening plants, which could take four to six months. In addition, as subcontractors and contractors flounder a bit on how much they should allow for steel in their bids, uncertainty could put pressure on them to raise prices to cover potential price increases from their suppliers.
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