With steel demand at an all-time high last year, David Cane, associate at Gardiner & Theobald, considers what’s next for the sector – plus David Sands of Bourne Steel gets a grilling
After a period of unprecedented growth in prices during 2004, early data for 2005 indicates that the constructional steel market faces greater stability in the year ahead. In January, Anglo-Dutch steel producer Corus confirmed, as expected, a £20/tonne increase on contract steel prices. But this is likely to be the last increase for some time, which brings a degree of predictability back to the sector.
Despite the price increases, demand for steel in the UK market remained at a very high level in 2004. The amount of steel used rose by 50 million tonnes, topping 1 billion tonnes in a year for the first time. One of the principal concerns for steel users was the availability of material, but the year ended with more steel in the supply chain than there had been at the beginning.
Continuing high demand is expected in the UK for 2005. Steel has maintained its dominance of the high-rise office sector, making up about 70% of the market, and it is moving increasingly into sectors that have been the traditional home of concrete frame construction, such as residential.
Here, the proportion of high-rise developments built using steel frames rose 4% in 2004 to 43%. Across all sectors, steel-frame construction accounted for 69% of all high-rise buildings in 2004.
Steel price inflation
The spectacular increases in structural steel prices in 2004 were driven by a shortage of new materials and high demand for finished steel. The rapid expansion of the Chinese economy led to domestic consumption
of steel increasing by 20% each year. Although the Chinese steel industry accounts for a quarter of the world’s production, China’s consumption of raw materials, both ore and recycled scrap steel, led to a global shortage, and prices of raw materials have risen by 40% and 20% respectively, resulting in a considerable knock-on effect on UK steel prices.
In a succession of price rises from Corus in the UK, the list price of grade 42 or grade 50 steel increased by an average of £170/tonne in 2004. DTI data shows that the price of rolled steel sections ended 2004 60% higher than it began. Chinese growth is expected to fall back from 18% in 2004 to about 10% in 2005, thereby considerably easing that nation’s demand for steel products and steel raw materials.
The long-term view of prices is difficult to predict. Some analysts were predicting that prices of finished steel would rise up to 50% in 2005, although the predicted slowdown in Chinese economic growth in 2005 has moderated this. The trend of recent months for prices to be fixed only at the time of placing the order has eased and long-term fixed prices are, once again, possible.
The Steel Construction Institute’s lifecycle assessment of the environmental impacts of steel- and reinforced concrete-framed buildings concluded there was very little significant variation between the two types of construction in terms of embodied, operational and total building lifecycle energy or C02 values.
The environmental benefits of steel include the following:
- It is 100% recyclable
- It uses the minimum volume of materials
- It involves a clean, dust-free construction process
- There is minimal site wastage
- Good end-of-life options include dismantling of building and reuse of steel frame or demolition and recycling of steel components
- Off-site fabrication in a controlled environment means better quality
- It is adaptable and flexible to suit changing lifetime requirements.
Bourne Steel is one of the UK’s largest specialist steel contractors with a turnover last year of £35m. The Poole-based company has 170 employees and provides a steel design, fabrication and erection service for all types of buildings all over the UK. David Sands is Bourne Steel’s managing director and chairman, and talks here about the issues facing the structural steelwork specialist.
What type of work do you specialise in?
We are very market-led. Ten years ago it was power stations, utilities and water. Today it is residential developments, schools and hospitals, town-centre redevelopments, car parks and large warehouses.
What is the current state of the market?
The market is very healthy. We have full order books for the next 16 weeks, with some work that carries on until the end of the year, and this is true for steel specialists generally. The typical lead time for a 500 to 1000-tonne frame is 14 to 16 weeks.
Where is the work concentrated?
There appears to be work the length and breadth of the country. Scotland is weak but there is strong demand in the North-west, the North-east and the Midlands. London is starting to come back, there is strong demand in the residential sector and commercial work is starting to return. It’s starting in the refurbishment and upgrading of existing buildings, and we are seeing new developments moving forward.
Have the steel price increases affected you?
If you had asked me that question a year ago I would have said I was very concerned about price increases. At the beginning of last year we had a long order book and it wasn’t the best circumstances to find ourselves in. It came as a shock, as we were used to a stable market and contracts didn’t have clauses in to cover rising steel prices. This did cost us some money and harmed our profits.
Have things settled down now?
When the prices started going up, tenders were based on that day’s steel prices. By the second quarter of last year prices were fixed for three months from the tender date. From autumn, things were settling down and prices were fixed for six months from the tender date. Today it’s 12 months, as we are pretty confident that price increases won’t be more than 5%. Stability has returned to the market.
Have people switched from steel to concrete?
I haven’t seen any evidence of people switching from steel to concrete – the market for steel is as strong in the UK today as it was a year ago. That was a fear of the steel sector when price increases started coming through. But remember, concrete buildings have steel in them too. A concrete-framed building will have 40 kg to 50 kg of steel per square metre and a steel-framed building is 60 kg to 70 kg.
How is the market for steel-framed buildings changing?
One significant change is the growth in lightweight steel frames for residential buildings. We see huge opportunities in the Thames Gateway. Currently, the market there is dominated by masonry but there are opportunities for lightweight steel-framed low-rise buildings, and traditional steel frames for medium and high-rise buildings. It’s already starting to come through: we have just finished putting a six-storey steel frame on top of a concrete residential block in south-east London.
Does that mean more of your work will be prefabricated?
There is increasing demand for larger and larger chunks of buildings to be preassembled. There’s no reason why some of the M&E and fit-out couldn’t be carried out on our premises before delivery to site. We are working with Corus Living Solutions, whose prefabricated product still has to be unloaded and assembled on site and some components such as stairs are still needed. We see this as an emerging sector.
Any other pressures?
There’s the usual red tape from government, the rapidly rising cost of insurance and skills shortages. One of the areas in which we have not been successful as an industry is the recruitment of women. There is 50% of the population we need to make ourselves more attractive to. There is also the unification of the Eurocodes for structural steelwork. Negotiations have been going on for the past 10 years, and in two years’ time we will all be working to the same Eurocodes. It’s just starting to happen now.
Structural steel frame costs
The leading benchmark cost unit for structural steelwork is its unit cost per tonne, which includes the steel and the following elements:
- connection design (main frame design by structural engineer)
- detail drawing
- treatment and delivery
These are calculated against the overall estimated tonnage for the building to generate an overall frame cost. Unit costs per tonne can vary enormously as there are a combination of factors that influence the overall cost. Care should be taken in considering each project’s characteristics in arriving at a tonnage rate. This can be calculated either on the number of beams and columns in a building or a weight per m2.
The relative costs of each element will vary depending on the nature of the project. As an approximate guide on a “typical” medium-sized project, the tonnage rate could be divided as follows:
- materials 30%
- engineering 5%
- fabrication 35%
- priming 8%
- delivery 2%
- erection 20%
(See table Typical structural steelwork unit rates per tonne)
These rates are based on a 500-1000 tonne structure built in the fourth quarter of 2004. Projects of less than 500 tonnes may attract a premium of 5% or more on the costs. Projects of more than 500 tonnes may attract a discount if work is repetitive. The costs assume that the structural steelwork contractor will provide their own cranes for all the projects with the exception of office buildings, for which the main contractor provides a tower crane.
(See table Extra over unit rates)
The early involvement of structural steelwork fabricators is the most effective way to value engineer cost savings into steelwork frames. For example, using more substantial and therefore more expensive steel columns in a design could remove the need for stiffeners. The steel may cost more but it is cheaper overall than paying for labour to fabricate and weld stiffeners to the column. If this value-engineering approach is adopted early enough in the project across the whole frame design, significant cost savings can be achieved.
The principal forms of loading associated with building design are:
- Dead loading. This is loading of constant magnitude and location, and is mainly the self-weight of the structure itself.
- Imposed loading. This is loading applied to the structure, including the weight of the occupants, furniture, partitioning systems, general equipment, and snow loading. See BS 6399-1  for guidance. Note that in some cases clients may request that structures be designed for higher imposed loads than those specified in BS 6399-1. Also note there is very little difference between steel weights for imposed loads of 3.5 KN/m2 or 5.0 KN/m2.
- Wind loading. Wind produces both lateral and (in some cases) vertical loads. Wind may blow in any direction, although usually only two orthogonal load-cases are considered. BS 6399  details the values to be adopted for both these conditions. These are essentially the extreme loads that can be reasonably expected to occur on the structure, and are frequently described as the characteristic design loads. Lateral resistance to wind loads can be provided by a stiff core or by the frame itself – diagonal steel bracing is usually a less expensive solution than frames that resist wind-induced bending using stiff structural members and rigid connections.
- Columns. Doubling the span of beams from 7.5 m to 15 m will increase the average weight of the supporting columns by up to 50%.
- Primary beams. When used as primary beams, universal column (UC) sections are about 100% heavier than universal beam sections. However, the use of UC sections will allow the reduction of structural depths of construction by about 150 mm.
- Secondary beams. By using heavier-than-normal steel sections, the span of secondary beams may be extended. The additional weight incurred over 6 m may be up to 100% for a 9 m span or 200% for a 12 m span, but overall structural depths of construction can be reduced by between 150 and 300 mm.
Structural steelwork needs fire protection measures to meet building regulations.
Several options are available. Filling the space between the flanges of I-beams with fire-resistant blocks gives up to 30 minutes of fire protection; filling hollow steel sections with concrete gives up to two hours; and coating the steel in intumescent paint also provides two hours. Encasing the steel sections with fire-resistant board offers up to four hours’ fire protection.
Structural steelwork prices are influenced by the number of pieces per tonne, so a design that uses fewer pieces will cost less – usually designs that involve large bay sizes. With larger bay sizes, the extra weight due to the longer spans may be totally offset by the reduced price per tonne and the saving in number of columns and related workmanship. The resultant column-free space generally adds value to a project.
Modern CNC fabrication equipment can cope with complex designs but in general the more complex the fabrication the greater the cost. Fabrication is more economic with:
- Rationalised range and tonnage of section sizes
- Single square end cuts
- One-hole diameter on any one piece, which avoids drill bit changes
- Holes in flanges and webs aligned where possible
- Web holes that have adequate flange clearance
- Rationalised range of fittings (connections)
- Most connections drilled, then welded or bolted to the main member
- Choice of connection details left to the steelwork contractor as the type and design of connections directly influences the total frame cost.
Preferred procurement route
In Gardiner & Theobald’s 2004 survey of the structural steel industry, specialist contractors who responded stated that their preferred form of procurement was as follows:
- 45% trade contract under a construction management route
- 33% subcontract under a traditional form of contract
- 22% other form of procurement.
Specialist steelwork contractors, particularly the larger firms, clearly prefer to be appointed through a construction management contract, so it may be beneficial to follow this route for projects involving a steel frame package as a large part of the works.
Comparatively aggressive terms and conditions in contracts will result in higher prices from specialist contractors as steelwork requires significant investment in materials and fabrication processes before any completed work arrives on site.
Making interim payments for work and materials in the process of being fabricated but not yet delivered or erected will often lower the overall steelwork costs and improve contingency planning. Similarly, the system of deducting cash retentions is inefficient and out of favour in a number of areas of specialist contracting, including steelwork. Retention bonds offer similar protection.
For the most competitive costs and fastest programme time, the following should be carefully considered when preparing tender documentation for structural steelwork. Although it won’t be possible to meet all these issues on all sites, they must be addressed as a minimum for any given project:
- Clear, safe access from the nearest road to the erection area
- Access areas that have a solid surface and are clear and level
- Sufficient space to erect steelwork in one continuous visit without interruption from other trades – additional visits or phases will add costs
- Capacity to stand cranes next to or inside the structure during erection
- Electric current supplied free of charge
- Ground conditions that can withstand imposed loads during lifting operations.
In projects involving tower cranes, the specialist steelwork contractor will typically require these 85% of the time.
Specifiers need to know how much time there is between placing an order and delivering the steelwork to the site to commence erection. Obviously this will vary depending on the size and complexity of the project, but for relatively straightforward projects, the period from receipt of order with full information to start of delivery is typically less than 11 weeks:
Working drawings 4 weeks
Approve drawings 4 weeks
Manufacture 3 weeks
Erection times will vary depending on the location and complexity of the project. As an example, 1500 m² of floor area would be erected per week on an eight-storey office building using two cranes.
This report was compiled by David Cane, an associate at quantity surveyor Gardiner & Theobald. Email him at email@example.com