Pipe Price Hikes Stun Industry

BY ROBERT P. MADER Of CONTRACTORs staff ANY CONTRACTOR who has bought pipe or duct lately has probably experienced sticker shock. And any contractor who hasnt paid attention to steel and copper prices will end up losing money somewhere along the line. The culprit is China, which is voraciously buying up scrap steel for its own burgeoning economy and to produce some products for export. Supplies of

BY ROBERT P. MADER

Of CONTRACTOR’s staff

ANY CONTRACTOR who has bought pipe or duct lately has probably experienced sticker shock. And any contractor who hasn’t paid attention to steel and copper prices will end up losing money somewhere along the line.

The culprit is China, which is voraciously buying up scrap steel for its own burgeoning economy and to produce some products for export.

Supplies of raw material have gotten increasingly tighter since last fall, said Roddey Dowd Jr., president of Charlotte Pipe & Foundry. Charlotte Pipe has been subjected to one price increase after another from its raw material suppliers, Dowd said, and he cannot guarantee a price for pipe until it ships.

USA Today reported in late March that the price of one ton of hot rolled coil steel is up 66%.

Dowd also noted that some customers, alarmed at the price increases and worried about availability, have begun hoarding steel and copper products. Some contractors told CONTRACTOR that their wholesalers were encouraging them to buy and store product.

Everybody who has anything to do with metal is getting nailed. General Motors is suing two suppliers for allegedly violating their fixed price contracts, the Chicago Tribune reported. The Wall Street Journal reported that Hong Kong gangs are stealing manhole covers and shipping them over to the mainland.

The price increases may be hurting mechanical contractors, but prices are also skyrocketing for electrical wiring, not to mention steel structural members and rebar.

The price per pound of 24-gauge duct steel in 60 days rose from 24 cents to 51 cents, said contractor John Garvelink of Commercial Design Engineering in Colorado Springs, Colo.

“And that’s if you can get it,” said Garvelink, a past president of Plumbing-Heating-Cooling Contractors - National Association. “We’re on allocation.”

A Connecticut contractor had a hard time finding sprinkler pipe. George Porto of George D. Porto Plumbing & Heating in North Haven bid a warehouse sprinkler job Feb. 16, won the job on Feb. 18 and the next day talked to his wholesaler, who said the prices would go up 32% by March 1.

The prints were done on March 1, and by that point the wholesaler didn’t have Schedule 10 112-in. pipe. Porto needed 4,000 ft. and the wholesaler had 100. His wholesaler did, however, have the 3-in. and 4-in. pipe Porto needed.

Porto could not find Schedule 10 112 in. anywhere in Connecticut.

“So I’m calling all around out of state and I find a guy with the pipe in Massachusetts,” Porto said. “Naturally, he wanted more money because his replacement cost is more and I’m not a regular of his, which I can understand to a degree. Everybody else is telling me I have to wait until March 29 and they can’t tell me the price until the truck leaves the mill.

“As it is now, the job is halfway done. So I tell the guy in Boston, ‘I don’t want a whole load, I just want the inch and a half.’ He says I got to take the whole load or nothing at all. It was only 220 ft. of 3 in. and 300 ft. of 4 in., but what am I going to do?”

Porto bought the whole order, although he paid $3.75 a ft. for the large pipe when his regular wholesaler would have charged $2.82 a ft.

Porto also had a stack of faxes and bulletins from suppliers bearing bad news. Steel sprinkler pipe, Schedules 7, 10 and 40, went up 20% March 29. Standard AS 53 pipe will be sold on the price at the time of shipment, not when the order is placed.

Nipples went up 20% April 1. Grooved fittings increased 11.5% April 1. Hangers went up 7.5% April 5. Drop nipples increased 12% April 1.

Steve Conley, purchasing manager for Ridgeway Plumbing in Boynton Beach, Fla., said that 12-in. Type M copper tube went from 23 cents or 24 cents per ft. per 100 ft. in October 2003 to 99 cents per ft. per 100 ft. at the wholesale level April 6. The price increases have hit everything, he said, including steel tubs, ball valves, brass fittings and water heaters. He said he can’t even get a price on what a water heater will cost in the second half of this year.

Conley noted that he has even seen price increases for PVC because the resin comes from Indonesia; 4-in. PVC foam core that was 55 cents a ft. per 100 ft. in September was 84 cents a ft. per 100 ft. to the wholesaler in March.

“We just hope to ride it out,” Conley said.

Steven Jones of Raven Mechanical in Houston said he’s trying to “hip shoot” price escalations for projects going out to bid.

“We’ve taken it in the shorts for jobs underway now,” Jones said.

He just bought two truckloads of cast-iron pipe and one truckload of steel pipe for a middle school that recently broke ground, and he’s going to store it until he needs it. He can tell from the prices he’s seen on competitive bid work that many plumbers are unaware of the rising prices; he said they are not putting money in their bids to account for escalation.

How can contractors protect themselves? PHCC-NA suggested escalation clauses and cited (with permission) a sample clause authored by the American Subcontractors Association.

The ASA contract language said that price increases should be handled like a change order if the price increases X%. How much X is, however, is something that contractors will have to negotiate with their customers.