Have you ever wondered how steel prices are determined? If you've ever given it any serious thought, you'll soon realize how complicated of a process it is. From calculating the cost of raw materials and transportation to analyzing supply and demand and global industry trends, establishing a benchmark to measure current and future prices against isn't exactly a walk in the park.
Thankfully in 1969, a group of industry professionals - ranging from financial analysts, economists, data scientists, and market researchers - decided to begin an independent commodity research company known as Commodities Research Unit (CRU). This group would go on to develop what is now known as "the CRU," saving us all in the metals industry a world of headaches when it comes to establishing a benchmark to measure steel prices against.
What is CRU?
Though sometimes used interchangeably, the abbreviation "CRU" and "the CRU" mean different things.
As mentioned earlier, CRU stands for Commodities Research Unit. Though originally a copper research specialist, the CRU is now a globally-renown commodities research and price-reporting agency (PRA) that assesses a variety of different commodities through market research and analysis.
Through their research, the company provides global economic price assessments for the metals, mining, and fertilizer industries by collecting and analyzing industry-specific data from across the globe. Their assessments most notably serve major mining, trading, manufacturing, construction, and financial services companies worldwide.
What is the CRU Index?
"The CRU," more formally known as the CRU Index, is the most established and trusted price benchmark in North America for U.S. Midwest Domestic Hot-Rolled Coil Steel (HRC).
In technical terms, the CRU Index is a segmented stock market index that helps investors track steel performance by comparing current steel price levels with past steel prices to calculate future market performance.
In fact, the CRU index is used as a settlement price for the Chicago Mercantile Exchange's (CME) US Midwest domestic HRC futures and options contracts and is referenced in over 95% of physical contracts for hot rolled coil in the U.S. market.
These contracts allow prices to be managed separately from physical steel supply for the current year and the following two calendar years, providing buyers and sellers a central point for price forecasting, discovery, transparency, and risk management.
Ultimately, the CRU index helps those across the entire steel supply chain, from global investors and analysts to mills and service centers, manage their businesses by having a trusted steel price benchmark to use when purchasing and selling steel.
How is the CRU Index calculated?
Just like any other commodity, the price of steel is essentially determined by market supply and demand. In other words, it's about understanding how much steel is available versus how much is being bought on a large scale. Unfortunately, this type of information isn't the easiest to access or analyze, for that matter. That's where the CRU Index comes in.
To calculate the CRU Index, CRU partners with a mix of vetted steel mills, service centers, and manufacturers to collect transactional data on a weekly basis through their CRU price collection platform (CPCP). The price is developed using only actual transactions on a Free On Board (FOB) mill-basis at a volume-weighted price.
Once collected, the data is reviewed and put through a rigorous process to create an up-to-date price assessment. The price comes out every Wednesday at 8 AM (CST) and reflects the business done during the Sunday to Saturday week before.
For the weekly CRU Midwest Hot Roll Coil assessment, the company only considers spot prices for U.S.-made, prime, hot rolled coil measured per US ton. There are no bids, offers, or opinions taken into account during the calculation.
Here is a breakdown of the CRU's price assessment process:
- CPCP Checks: The CPCP opens first thing on Friday and closes Monday at midnight (CST). As data comes in, a price analyst begins reviewing, spot-checking, and investigating any potential errors or outliers.
- Initial Calculation: On Tuesday, the data is sent to the London headquarters, where it is further reviewed and processed by senior data managers. The data is then used to create an initial calculation, which is then sent to a principal analyst for final assessment.
- Analyst Review: Once the analyst receives the initial calculation, they establish a range reflective of the current market - as prices are submitted, any prices in this range are automatically included.
- Verification & Final Calculation: Once all the prices are in and run through various spot checks, the principal analyst oversees the final calculation to include all prices representative of the market.
Steel Market Prices vs. Steel Product Prices
Steel market price refers to the overall cost of steel in the global market, which is influenced by a variety of factors such as supply and demand, production costs, and economic conditions. Steel product price refers to the cost of a specific steel product, such as a steel beam of a particular grade and size.
The price of steel products can be influenced by the market price of steel as well as additional factors such as the cost of production, transportation, and distribution. Additionally, steel prices today regarding individual products can be different between regions and suppliers and may depend on the volume and type of the order.
Unless you're an economist, market analyst, or day trader, chances are you won't be too concerned with monitoring larger-scope market prices. In other words, while an economist may be studying the global price fluctuations of iron ore, a service center or manufacturer will be far more concerned with using market pricing to determine fair contract negotiations when sourcing steel from a mill.
As a buyer, it's essential to remember that while a correlation does exist between the larger-scale market price and downstream steel material prices, the two will never be the same. Just like the price of flour may influence the price of bread, it does not determine the final cost - the same goes for hot rolled steel coil. The farther down the value-added stream you go, the more factors (e.g. labor, energy, and transport costs) will influence the final price.
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What are the factors that influence the cost of steel construction?
- Size of the building
- Type of steel to be used
- The fluctuation of steel prices
- Design, complexity, or customization of the building
- Construction and labor cost
Steel construction has become a popular choice for various building projects due to its durability, versatility, and eco-friendly nature. However, when it comes to estimating the cost of steel construction, there are several key factors that need to be considered. Understanding these factors that influence the cost of steel construction can help project managers, architects, and construction professionals make informed decisions and optimize their budget allocation.
In this blog post, we will explore the primary factors that influence the cost of steel construction. By delving into aspects, we aim to provide valuable insights into managing costs effectively in steel construction projects.
Size of the Building
The size of the building is a crucial factor to consider when estimating the cost of steel construction. It plays a significant role in determining the value of opting for steel as the construction material. One of the primary reasons for this is that constructing a large building with steel requires a substantial amount of materials. The scale of the project translates into heavier workloads and more extensive working time for construction workers.
Furthermore, constructing larger steel buildings requires the use of larger materials, additional foundations, and robust structural support. The process of designing and constructing large architectural works brings forth a range of complexities that must be carefully considered.
Type of Steel to be Used
The cost of steel construction is influenced by the various types of steel available. The value and quality of steel can vary significantly, impacting the overall cost of the construction project. Different types of steel have distinct properties and intended uses, making them suitable for specific construction requirements.
The selection of steel for construction purposes involves considering factors such as strength, durability, corrosion resistance, and flexibility. For instance, high-strength steel might be chosen for structures requiring exceptional load-bearing capacity, while corrosion-resistant steel is ideal for projects in coastal areas or environments with high moisture levels.
Understanding the characteristics and applications of different steel types allows construction professionals to choose the most appropriate steel for their specific needs, thereby influencing the overall cost and success of the steel construction project.
The Fluctuation of Steel Prices
The cost of steel construction is greatly affected by the fluctuating prices of steel. As a commodity, steel prices are subject to market dynamics and global economic conditions, resulting in frequent price changes. Various factors, including supply and demand, trade policies, availability of raw materials, and geopolitical influences, can contribute to these fluctuations.
When planning steel construction projects, it is crucial to consider these price variations as they can significantly impact the overall project budget. To navigate the challenges posed by fluctuating steel prices, effective procurement strategies, proactive risk management, and staying informed about market trends are vital for achieving cost-effective steel construction outcomes.
Design, Complexity, or Customization of the Building
The cost of steel construction is significantly influenced by the building’s design, complexity, and customization. Unique architectural designs, intricate structural elements, and specialized features can increase the project’s complexity, leading to higher costs.
Customization requirements, such as specific finishes, detailing, or non-standard dimensions, can also contribute to expenses. Building designs that incorporate complex geometries, large spans, or intricate connections may require additional engineering analysis and fabrication techniques, resulting in higher costs. Therefore, it’s crucial to carefully consider the desired design and customization aspects during the planning phase to ensure that the budget aligns with the project’s complexity and uniqueness.
Construction and Labor Cost
The cost of steel construction is influenced by various factors, including construction and labor costs. Location plays a crucial role as it affects the availability of skilled workers, material costs, and local market rates.
Complex steel construction projects often require specialized expertise, which can result in higher labor expenses. The construction timeline is another consideration, as longer durations can lead to increased labor costs.
Additionally, factors such as site preparation, logistics, and safety measures can contribute to the overall expenses. To ensure that construction and labor costs align with the budget, thorough planning, and effective project management are essential, taking into account these factors.
Key Takeaway
The cost of steel construction is influenced by various factors that need to be carefully considered during the planning and execution of projects. To achieve cost-effective outcomes, it is crucial for project managers, architects, and construction professionals to analyze and manage these factors effectively.
By understanding and accounting for the factors that influence the cost of steel construction, stakeholders can optimize their budget allocation, mitigate risks, and successfully navigate the dynamic landscape of steel construction, ensuring the delivery of high-quality and sustainable structures.
If you’re looking to work with one of the leading steel suppliers in the Philippines, contact us at Metal Exponents. Forty years of experience have guided us to become who we are today. We provide you with the best supplies from our international partners.
Factors that Influence the Cost of Steel Construction