NOVI, MI - The price of diesel fuel and the construction slowdown in Michigan are delivering a one-two punch to building supply companies. At the same time, many are struggling with record-setting raw materials costs, particularly the cost of steel, copper and iron scrap. "This is the worst it's been in the 38 years I've been in business. We've had other scares and shortages, but nothing like this," said Terry Sweeney, president of Terry Sweeney & Co. in Novi. "We're only going out 15 days on our quotes, that's how quickly we're seeing price increases."
Since the end of last year, his cost for reinforcing steel has skyrocketed by 70 percent and wire mesh is up by 75 percent, he said. Even worse, the price increases are unpredictable. "We got a notice that was "effective immediately," an increase of $150 a ton for reinforcing steel. We just got a $40 increase in June, and we'll take another one in July for $35-$55 per ton," Sweeney said. "Fabricated steel that was going for $750-$800 a ton last year is now going for $1,250-$1,350."
According to Associated General Contractors of America, the pricing index-- which correlates to supplier prices-- for steel mill products is up by 13.3 percent since the first of the year, by 10.2 percent since April of last year, and up by 85.3 percent since 2003. Copper has climbed even more dramatically, up by 13.5 percent already this year, and by 173.2 percent since 2003.
Even those building suppliers which trade in more stable product, such as concrete and lumber, are feeling the pinch as diesel fuel prices have climbed 68 percent in the last year, to an average of $4.71 per gallon, according to Ken Simonson, chief economist for AGC. "Delivery is just killing us," said Steve Ryan, general sales manager for concrete supplier Superior Materials LLC in Farmington Hills.
The company has seen its margins slip, though not necessarily due to the price of concrete. Concrete prices spiked in 2005, but have since remained stable, and now are only 1-2 percent higher than last year, compared to 3-5 percent in 2007 and 7 percent in 2005, Ryan said. "But we quote one delivery price, and we're having a hard time recouping the cost of diesel fuel, not only for our own trucks, but also the deliveries that we get sent to us," he said.
At the same time, sales volume is down as construction activity in Southeast Michigan remains sluggish. "When contractors get loaded up with work, they are quoting higher prices. But the opposite is also true when work is slow," Ryan said. "But as everyone knows, anything having to do with new home construction is pretty bleak." Superior Materials supplies the residential market as well as civil and commercial construction markets.
"On the commercial side, work is down compared to five years ago, even though it's pretty stable compared to last year," Ryan said, adding that there will be significant road construction projects in Wayne and Oakland counties next year; if his company supplies those projects there will be a boost in the business.
But there's still not much he can do about the cost of fuel. "That has been the biggest single increase in our costs," Ryan said. The cost of fuel and materials have taken a huge bite out of profits for fourth-generation electrician Brett Cohen, president of J. Simon & Sons in Berkley. Prices of copper wire have climbed from $127 per 1,000 feet a year ago to $195 now, he said. "In 2003 to 2004, it was only $80," Cohen said. "And this business climate is really bad. Everyone is starving for work here. It's so competitive, especially now that there are all these smaller guys who work out of their houses and have no overhead. It's gotten to the point where it's not profitable at all f
Source: Mlive.com