The Rising Cost of Steel Affects HVAC Industry

More than a few price increase announcements have crossed my desk over the last month. During a conversation I had with Lawrence M. Blackburn, business unit president of Goodman Mfg. Co., he confirmed this is an issue that Goodman is keeping an eye on.

“Any rapid increase in raw material costs required to manufacture high-quality HVAC equipment and systems can create unanticipated pressure to maintain pricing levels to customers. As a manufacturer, Goodman can accommodate commodity price increases that rise slowly or rise consistently over time. A concern develops when commodity prices, like cold rolled steel, rise rapidly or spike from our suppliers,” said Blackburn. “In the case of steel, the price increased quickly and has continued to rise. The current forecast suggests the cost of steel may continue to rise over the coming months. Sometimes, price increases can be negotiated with our suppliers. But many steel producers provided many of their customers with immediate notifications of substantial price increases that were termed as non-negotiable.”

There are many reasons why steel has skyrocketed this year. One leading reason includes new import tariffs that can be as high as 266 percent. This was in reaction to the Chinese imports that were driving down the price. With the new tariffs now in place, U.S. steel manufacturers are having a difficult time getting production back up to the normal levels.

“When the federal government imposed steep tariffs on offshore steel products, this was a positive move for the creation of steel-producing jobs in the U.S. Unfortunately, steel producers were caught between the increased need for steel products and having reduced steel-making capacity when the offshore producers were aggressively price cutting,” Blackburn said.

This is compounded by the growing economy, where more steel is needed for items like construction and automobiles. Obviously, it beats the alternative, but it’s something the industry needs to deal with.

“HVAC manufacturers may get hit twice with higher steel prices. First, we experience higher prices directly for the steel purchased in the manufacture of our branded HVAC equipment. Second, our suppliers of components and subassemblies that use cold-rolled steel may request price increases because they are suffering from the same rapid rise in steel costs. So, we are affected as a manufacturer and as a purchaser of sub-assemblies and components that use cold-rolled steel,” said Blackburn.

At the end of the day, it does not matter why steel prices are rising. It’s more important to recognize the situation and plan accordingly.

Most experts do not feel the prices have hit their ceiling and are anticipating additional price increases in 2017.

Goodman agrees.

“At the current pricing levels for cold-rolled steel, we do not believe prices have peaked. In fact, we have reviewed data that suggests steel prices may continue to increase over the next several months,” said Blackburn. “If steel prices stabilize at the higher prices or even the highest price levels, this will cause undue pressure on all manufacturers that use cold-rolled steel in the manufacture of their products.”

So, contractors should be aware that as 2016 soon turns into 2017, there might be a fair amount of price increases getting passed on to them. Most of the increases that have crossed my desk appear to be around 5 percent. This is certainly something to remember as you prepare your 2017 projections.

Publication date: 11/28/2016

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