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Lumber and Steel Tariffs Take a Toll on Construction Projects

A food truck draws construction workers on a job site in Austin's East Side. Image: Google Maps.

Feature photo (above): A food truck draws construction workers on a job site in Austin’s East Side. Image: Google Maps.

Posted: 7-16-2018

by Edmond Ortiz

The Trump Administration’s mounting use of tariffs as a club to transform U.S. trade policy is resulting in negative effects across many industries, and the construction industry is no exception.

Lumber and steel are of vital importance to general contractors, and they’re experiencing abnormal price hikes on both.

Concerns over the Trump Administration’s trade war with exporters of steel, lumber and aluminum are growing among fabricators and other businesses that rely on those materials around Texas and elsewhere.

The National Association of Home Builders reports the tariffs on Canadian softwood lumber, now more than 20 percent, act like a tax on American home builders and home buyers. And the tariffs make no sense.

In 2017, the United States consumer 47.6 billion board feet of softwood lumber, while producing only 339 billion board feet. Imports are necessary to make up the shortfall and 93 percent of those imports came from Canada.

To make up the shortfall, builders have been forced to look into other more distant overseas markets, including Sweden, Germany and Russian, the NAHB reported.

“Since the beginning of last year, rising lumber prices have added nearly $9,000 to the price of a typical new home and more than $3,000 to the value of a typical multifamily unit. These record-high prices are making housing less affordable for American families.”

At the urging of the NAHB, 171 U.S. House members from both political parties on June 12 urged Commerce Secretary Wilbur Ross to return to the negotiating table with Canada to reach a new softwood lumber agreement.

In San Antonio, Kristi Sutterfield, CEO Greater San Antonio Builders Association, recently shared with members the effects of the U.S.-Canadian lumber impasse.

In an association column to GSABA members, Sutterfield said that prior to the tariff imposition, the United States and Canada had in place a mutually beneficial agreement that contained a system of feeds and quotas on Canadian imports.

The pact, established in 2006, made it possible for those fees and quotas to be triggered in re-sponse to price fluctuations in the softwood lumber market. The agreement expired in October 2015.

“With no written agreement in place and with tariffs averaging over 20 percent, lumber prices have continued to skyrocket, reaching an all-time high in March of this year,” Sutterfield wrote.

Sutterfield said the association should urge the U.S. and Canada to negotiate a new lumber agreement soon.

“This issue is one of the biggest burdens on our builders locally as well as builders and suppliers across the nation,” she added. “This burden is affecting housing affordability and pricing thou-sands of new home buyers out of the market. It not only effects lumber costs but items like window and door manufacturing, too.”

Despite the lobbying effort and pressure from Congress, Ross has yet to reopen negotiations.

The Associated General Contractors of America released their assessment of the tariff effects in a June 13 statement that reported steep increases in a wide range of building and road materials. Chief AGC Economist Ken Simonson said prices jumped at double-digit annual rates for metals, lumber and plywood, and diesel fuel, while ready-mixed concrete, asphalt paving and roofing materials also had unusually large increases.

“The cost of all goods used in construction rose 8.8 percent from May 2017 to May 2018, the steepest annual increase in nearly seven years,” Simonson said.

May 2017 to May 2018 Producer Price Index Changes

  • Up 17.3 percent on Aluminum Mill Shapes
  • Up 13.9 percent on Lumber and Plywood
  • Up 13.8 percent on Copper and Brass Mill Shapes
  • Up 10.5 percent on Steel Mill Products
  • Up 44.5 percent on Diesel Fuel
  • Up 8.9 percent on Asphalt Felts and Coatings
  • Up 6.5 percent on Ready-Mixed Concrete
  • Up 5.2 percent on Paving Mixtures and Blocks

The impact of steel and aluminum tariffs imposed on Canada, Mexico and the European Union on May 31 was not reflected in the AGC numbers.

Prior to taking effect, the tariffs triggered a surge of orders that mills reported exceed their capacity, a situation that threatens to produce delays, budget problems and possibly cancellations on future projects.

AGC Chief Executive Officer Stephen E. Sandherr said, “Considering the impact the mere threat of tariffs have had on materials prices and demand, prices are likely to increase further as the new trade restrictions cone online.”


Steel pipe being sorted and hoisted for a delivery. Courtesy: Triple S Steel Supply Co.
Steel pipe being sorted and hoisted for a delivery. Courtesy: Triple S Steel Supply Co.

In early March, steel was added to the list of materials estimators would have to recal-culate when Trump put a 25 percent tariff on steel imports. Overseas aluminum was also affected with a 10 percent tariff.

This has generally raised the price of rebar used in concrete by about 30 percent, ac-cording to some reports. That has an affect on the cost of tall buildings and bridges.

There is one silver lining—price stability for domestic manufacturers. San Antonio Steel Co. (SASCO) is a wholesale distributor of agricultural fencing materials and build-ing products serving 500 ag supply centers, lumber yards and steel fabricators nation-wide.

According to SASCO vice president of sales and marketing Charles Rugh, SASCO is seeing “significant increases in cost of materials, both from import and domestic manufacturers, as well as tightened supply and longer production lead times.

“One of the best things for our business is stability and certainty,” Rugh continued. “Now that the tariff is in place, and everyone knows the conditions, there has been more stability in pricing. That makes it easier for everyone to run their business.”

Rugh said company officials have felt no need to complain to elected leaders about the tariffs.

“The higher prices have given our manufacturers much needed relief and, up to this point, the demand for our wire products has stayed very strong despite 15-20 percent price increases to the consumer,” he added.

There are other tariff supporters. JSW Steel, an Indian steel pipe and plate manufacturer with a Baytown factory, said its American division would invest $1 billion into its facilities in Baytown and in Ohio.

JSW officials backed the tariffs, saying they would help enable the company to create thousands of new jobs and be even more competitive globally.

Those views, however, are not widely shared across Texas. The Texas Alliance of Energy Producers (TAEP) wrote a letter in May to the Commerce Department with comments critical of the U.S. tariffs.

“Steel is a primary input in the development of oil and gas production in Texas in terms of drilling, ongoing production, and delivery to market,” the letter stated.

“Depending on location, intra-company economics, and other factors, steel typically accounts for 10-20 percent of the overall oilfield cost structure. As such, the imposition of tariffs and the potential imposition of quotas by agreement or fiat and the resulting steel cost increases is of great concern to TAEP, our member companies, and Texas and U.S. domestic oil and gas producers.”

TAEP asked the Commerce Department for exemptions for countries that supply oil-field steel goods, including Canada, Mexico, the European Union, South Korea, Argentina, Brazil and Japan.

According to some media accounts, Texas could be hit particularly hard by this trade war. A Wall Street Journal story explained that the 25 percent tariff on imported steel is already raising costs for Texas shale drilling companies, such as Irving-based Pioneer Natural Resources and Houston’s EOG Resources because steel is such a vital mate-rial in oil drilling.

Industrials leaders already worried about ongoing negotiations on the North American Free Trade Agreement (NAFTA) said the consequences from the tariffs may compound NAFTA talks with Canada and Mexico, both of which have criticized the Trump tariffs.

Canada and Mexico both have retaliated with their own tariffs on American products.

This high-rise building project in downtown Houston depended on the availability of softwood lumber and steel reinforced structural concrete. Image: Google Maps.
This high-rise building project in downtown Houston depended on the availability of softwood lumber and steel reinforced structural concrete. Image: Google Maps.

A number of advocacy organizations and individual companies affected the most by the tariffs, such as Marathon Oil, Hess, and Kinder Morgan, have asked the Trump ad-ministration for similar exemptions. Getting waivers, for some corporations, could be the difference in keeping financially viable.

Borusan Mannesmann Pipe US, a Turkish steel pipe manufacturer with a factory in the refinery-rich city of Baytown, Texas, is one such company. Borusan has been seeking an exemption from the imported steel tariff. Otherwise, the company faces potential lev-ies of up to $30 million yearly.

If this is not enough, many Texas steel and aluminum interests seeking tariff relief have the governor in their corner.

Gov. Greg Abbott wrote President Trump in late June, saying some of the tariffs pose a threat to parts of Texas’ expanding economy that depend on affordable foreign steel and aluminum.

“Our country’s steel and aluminum workers are a vital part of the national workforce, and creating jobs in that industry must be a top priority,” the letter stated.

“But attempting to protect these jobs through the new tariffs could jeopardize the livelihoods of hundreds of thousands of Texans and other Americans employed in the oil and gas industry.”

Former Texas Agriculture Commissioner Todd Staples, now president of the Texas Oil and Gas Association, shared similar thoughts earlier this year in an op-ed with the Austin American-Statesman. Staples said the steel and aluminum tariffs overlook an array of factors affecting crucial parts of the state’s economy.

“Increasing line pipe costs by 25 percent, for example, would add $76 million to a typi-cal pipeline project, according to the Association of Oil Pipe Lines,” Staples wrote.

“Bigger pipeline projects could cost as much as $300 million more. If we are to continue to meet our energy demands, we need more pipelines and public policies that make it economical to build them.”

Staples continued: “Beyond price, the decision to tax imported steel does not seem to consider the issue of availability. Oil and natural gas operators in Texas and across the nation use specialty steel that is not widely available from U.S. steel mills. Only a handful of domestic mills manufacture pipe that is the size and thickness needed for many U.S. pipeline projects.”


Edmond Ortiz is a San Antonio-based freelance reporter and editor. He has worked for the San Antonio Express-News and Prime Time Newspapers. He is a contributor to the Rivard Report and the Virtual Builders Exchange. His Twitter handle is @satscribe.