Twin Cities contractors already facing labor shortages are grappling with another wild card to factor into the cost of upcoming construction projects.
Recently imposed tariffs on imported steel and aluminum, critical components of most office and industrial buildings, have left construction companies guessing how much prices will continue to climb and how rising prices could affect future developments.
While several local construction company executives said they are closely monitoring the volatile steel prices, many have yet to make a firm determination on the extent of the tariffs’ effects.
“We have seen some impact on pricing,” said Dave Lenss, vice president of pre-construction services at Kraus-Anderson Construction Co., who estimates that there has been a 3 to 4 percent increase in material costs so far this year compared to last year that is partly due to tariffs. “It fluctuates. It seems like the more that comes out in the news the more people panic and the pricing jumps around.”
Earlier this year, President Donald Trump introduced 25 percent tariffs on imported steel and 10 percent on aluminum. While tariffs for most countries took effect in March, some of the United States’ largest exporters of steel, Canada, Mexico and the European Union, were exempted until the end of May.
Last month, St. Paul-based McGough Construction Co. broke ground on the downtown Minneapolis headquarters for not-for-profit financial-services firm Thrivent Financial.
The 1,700 tons of structural steel needed for the eight-story building’s frame and the aluminum for its exterior walls were ordered in July, due in part to long lead times for the materials but also to try to get ahead of some of the higher prices associated with the tariffs, said Tim McGough, executive vice president and principal-in-charge for McGough.
“The threat of the tariffs only gave us that much more motivation,” he said.
A rush on orders from other contractors prompted Kraus-Anderson to expedite the purchase of steel for a pre-engineered metal building out of state.
“Just the talk of the tariffs pushed several people into buying all at once,” Lenss said.
Kraus-Anderson is doing more frequent checks on the price of steel and taking into account the tariffs as it begins the early stages of some project estimates, Lenss said.
“When we price a project and we go out for estimates we will talk to the fabricators and say, ‘How long can you hold this?’ ” he said. “Sometimes they can hold it for 30 days and sometimes they say, ‘I need an answer next week. I’m afraid the price is going to go up again.’
“It’s just that volatile right now.”
Spencer Finseth, a principal for Minneapolis-based Greiner Construction, said it’s impossible to estimate how much steel prices will rise.
Prices are rising for domestic steel as well. The manufacturers that Greiner gets structural steel from are mostly sourcing the steel from mills in the United States. Since the beginning of the year, prices from those manufacturers have gone up about 15 percent, Finseth said.
“I know some of our buildings have switched from steel to post-tensioned [concrete construction] because concrete has been pretty steady,” Finseth said. “You typically know what concrete is going to do every year. It has just been a little bit more accurate in forecasting. Steel we don’t know.”
Still, even with increased steel prices, concrete may not always be the best option and there are many other factors to consider when evaluating building materials, he said.
“It’s not just as simple as steel is going crazy let’s everyone run to the left side of the ship,” he said.
LeJeune Steel Co. in south Minneapolis is one of the largest structural-steel fabricators in the Midwest and has provided steel for a number of development projects including U.S. Bank Stadium and the Mall of America.
LeJeune, which buys materials directly from mostly domestic steel mills, has seen prices increase due to tariffs, said Shane Shipman, president of LeJeune Steel. Domestic suppliers have increased their prices as imported prices have risen, he said.
While LeJeune hasn’t made any big changes to where it sources its materials due to the tariffs, higher material costs get passed along through the construction supply chain to construction companies and ultimately to the users, Shipman said.
However, he doesn’t see rising steel prices boosting overall construction prices enough to slow building activity.
“We still see building is strong,” Shipman said. “People are still investing in new building construction.”
After Trump first announced the steel and aluminum tariffs, the price of domestic iron and steel jumped 3.4 percent the next month, the biggest month-to-month jump in more than a year, according to the Bureau of Labor Statistics’ Producer Price Index. Since then, the rate of price increases has been on the decline.
According to a recent report by commercial real estate firm CBRE, construction costs of high-rise office and industrial buildings are expected to rise modestly due to the tariffs. Increased steel prices could also increase the cost of tenant buildouts in spaces.
Don Kohlenberger, president of Hightower Initiatives, serves as project coordinator for the redevelopment of the former Dayton’s store in Minneapolis. He said contractors need to be strategic in analyzing data and not “buy on fear,” on tariff news. For the industry, he believes a tight supply of labor looms as a bigger issue.
“Is there a general increase in pricing? Yeah, there is,” Kohlenberger said. “But right now a lot of that is due to a full employment marketplace.
“… In this market, construction growth is going to tap out at a certain amount not because of a peak of demand but a peak of capability. Our labor force can only do so much.”