Davis Langdon says steel prices could fall, despite Corus’ claims

Steel prices could fall by up to 15% this year after jumping by a half in 2004, a leading quantity surveyor has claimed.

Davis Langdon has forecast this reduction in price of steel in 2005 based on a rise in steel output and high existing steel stocks.

The prediction comes despite last week’s announcement by the UK’s top steel provider, Corus Group, that it intended to raise its prices in the fourth quarter of the year.

But Simon Rawlinson, head of the specialist cost research team at Davis Langdon, admitted there was “a degree of uncertainty in the steel market”, which made it difficult for QSs to predict the cost of projects, particularly those likely to last a long time.

Despite expecting a fall in prices, Davis Langdon also cited a number of potential drivers for a price increase. These include an expected increase in world demand for steel of between 3% and 4% compared with last year, and the knock-on effect of the rise in the costs of raw materials used to make steel rose at end of last year.

Rawlinson stressed that the last year’s 50% (£200 per tonne) hike in steel prices was highly unlikely to recur. He said that the 50% extra charged by Corus in 2004 translated in the construction industry into a lesser increase of about 35% on the price paid for steel by the end client. He added that steel accounted for only 5% of the total cost of the average building.

Steel manufacturers announce big price increases but they don’t carry over into reality

QS at a major firm

Another quantity surveyor at a major firm reacted with scepticism to Corus’ announcement of future price rises. The QS said: “QSs should take these headline announcements with caution. What you find with major steel manufacturers is that they announce a big price increase but these figures don’t actually carry over into reality. If they put their prices up contractors will resist them and seek cheaper steel overseas and the manufacturer can’t afford to lose its customers.”

He warned that such announcements provided contractors with the opportunity to increase prices. “There were all sorts of scare stories in the press last year about the trouble people would have getting hold of steel.”

The QS said there was significant increase in steel consumption in China and India in 2004, which did lead to an increase in prices worldwide, but the situation was far less dire than many had predicted.

He said the Chinese were poised to massively increase steel production in the coming years, which would lead to lower prices globally.

Corus announced last week that it intended to make prices increases at the end of the year despite flat demand in Europe, which is only set to grow by 1% across the continent.