Versatile steel weathers the downturn

Most conversations on the steel sector invariably start with its cost, which has increased dramatically over the past year. Fuelled by enormous global demand, and the high price of raw materials, steel prices have rocketed and after the latest price rises simple sections have broken the £1,000/t mark.

But depite the sharp increases in price, demand has not been seriously harmed. Steelwork has benefited from a bouyant market for years driven by activity across most sectors. It is uncertain what effect the current downturn will have on sales, but the sector's limited reliance on the residential market should cushion the blow.

Alan Todd, general manager at Corus, says the steel giant has had to contend with a combination of pressures that influence cost. "Costs have risen due to increased world demand for steel, particularly in developing economies such as China, and increases for basic raw materials used in steel manufacture," he explains. "There has definitely been a step-change in the cost of making steel and, given the expectation of continued high world demand, this is unlikely to be reversed. However, steel still represents good value - when measured against UK RPI, it is still cheaper in real terms than it was 20 years ago."

But Derek Tordoff, director general of the British Constructional Steelwork Association (BCSA), says prices will continue to rise. "As regards UK steel prices, there will be a further £60 per tonne increase in sections prices on 1 October, but a further increase in 2008 is highly unlikely," he says.

That said, there seem to be few worries that steel is losing market share because of its rapidly rising price. Todd adds: "There is no evidence to suggest steel is suffering more than any other material. The fact is that all construction materials are increasing in price at similar levels - not least the bar used in reinforced concrete, structural steels' main competitor in the building market, which has actually increased in price more than structural steelwork."

Tordoff explains that although steel prices have risen in recent times, the cost of steel frames to the end-client is around 40% less than in the early 1980s. In 1981 the cost of fabricated, erected and fire-protected structural steelwork stood at around £1,000 per tonne - a price that Todd says translates to around £3,000 per tonne in today's market.

As in other sectors, improvements in production efficiency, design and construction have kept prices from spiralling out of control.

Tordoff adds: "The results of the latest market-share survey show that steel was preferred as the framing solution for more than 71% of multi-storey non-domestic buildings, while in-situ reinforced concrete accounts for just 18%. The remaining 11% of the market is attributed to load-bearing masonry, pre-cast concrete and timber."

Jason Hensman, managing director of Conder Structures, agrees that there has been no loss of market share for steel compared to other competing materials, whose cost prices had increased by similar magnitudes. "Unfortunately for steel, it is more in the public domain and in the public's mind," he explains. "Steel is more of a commodity, being used in cars and white goods, so it's more at the forefront of peoples' perceptions."

Competitive edge

Steel has been competitive historically, particularly in retail, commercial offices, schools and industrial facilities, and the industry believes this will not change in the future. "It's all about quality, value, service and dependability combined to offer exceptionally high value," Hensmann says. "That's why Conder Structures is developing new, innovative uses for steelwork, and in the process redressing the balance between material versus labour costs."

In terms of cost comparisons, the steel industry is at pains to include reduced build and labour times when compared to concrete alternatives. Referring to the BCSA's latest cost study, Tordoff says: "The latest results, which include costing, structural design and programming by a team comprising Davis Langdon, Arup and Mace, show that steel continues to be the clear winner.

"The average cost for frames and floors was £164/m2 for reinforced concrete, compared to £132/m2 for structural steel. In addition, the total construction period for a steel frame is shorter than concrete alternatives this reduces time related prelimin-aries and labour costs, as well as giving the client access to the finished building earlier."

Staying equally optimistic about the future, Hensman adds: "While there may not be too much to be delighted about, talking 'doom and gloom' is not to our, or the industry's, advantage. The truth is that in early August nobody knows what twists and turns the economy may take over the next 12 months.

"There are currently many speculative enquiries in the market and at present it is difficult to predict how busy the industry will be in mid-2009."

Steve Fareham, managing director of Billington Structures, echoes the confidence in the sector and says the firm is not worried by competing materials. "Our experience is that steel is not losing any market share," he says. "Although the price of steel has continued to rise, it still remains the highly competitive material of choice. It still and always has been competitive and provides sustainable, economic, high-quality, innovative solutions."

Economic downturn

Given the efficiency and effectiveness of the steel construction supply chain, Todd believes that it is better positioned than others to weather any significant downturn. "The likely UK construction downturn is a concern for the near future, but looking further ahead there is optimism," he maintains. "World steel demand is growing rapidly and this will undoubtedly present the UK steel construction supply chain with some fantastic opportunities both at home and overseas."

But in the short term, the sector is battling as hard as any to maintain the highs experienced in the past two years. "There is no doubt that the worldwide credit crunch and the loss of consumer confidence are having an impact on the UK construction market. UK structural steel demand hit a historic high of over 1.4 million tonnes in 2007, and for 2008 we expect to see a small reduction, but beyond that is less easy to predict," Tordoff adds.

"However, I am optimistic for the future while there are similarities with the recession of the early 1990s, we have all learned lessons from that and construction demand is likely to see a quicker recovery this time."

He concludes: "The UK steel construction supply chain is the world's best and is well-positioned to weather any significant downturn. The underlying global steel construction demand will continue to grow in the medium/long-term and will present opportunities to UK companies in both home and export markets."

Steel in figures

• Price rises 2003-08: Iron ore 300% coal 500% steel scrap 700% electricity & gas 400%.
• Key markets (UK share for steel frames): Industrial (factories & warehouses) 95% commercial (office, retail, leisure, health & education) 71%.
• In 1995 and 2008, the price of steel sections increased by 15% in real terms, compared with reinforcement bar increases of 37%.
• In 2007, the UK structural steel demand hit an historic high of over 1.4m tonnes.

Steel & sustainability

• A study by the University of Wales indicated that 99% of structural steel in demolition is either recycled or re-used.
• Steel's capacity for repeated recycling has no detrimental effect on its properties.
• Steel allows for long-span construction, increasing the building's flexibility and therefore its life span, and reducing the environmental impact of refurbishment.
• Steel's large wide roof spans are suitable for energy generation using photovoltaics.
• Steel-framed buildings absorb excess energy, which can reduce the requirement for air conditioning.