Steel framers looking to take a bigger bite out of the
residential construction market might have to curb their
appetite as the sector shows no sign of rebounding and home
builders continue to slash costs.
Analysts aren't expecting the market to turn around anytime
soon, and double-digit drops in housing starts are expected
next year on top of the collapse in this year's starts.
U.S. housing starts and building permits unexpectedly rose
in June, according to U.S. Census Bureau data, but the increase
was mainly due to a recent change in New York City's building
code, which substantially drove up starts and permits for
multifamily dwellings in the Northeast.
Housing starts jumped 9.1 percent to a seasonally adjusted
annual rate of nearly 1.07 million, while permits increased
11.6 percent to a little over 1.09 million, marking the largest
increase since January 1990. Economists had forecast that
permits would fall to an annual rate of 961,000.
But when the New York City code change was removed from the
figures, housing starts actually fell by 4 percent and building
permits nudged up only 0.7 percent.
And the market still hasn't seen the bottom.
Robert P. Curran, managing director of housing at Fitch
Ratings Ltd., New York, forecasts that housing starts will fall
about 29.5 percent this year and another 8 to 10 percent next
"This year, in terms of new home starts and sales of
existing homes, we're going to see large percentage declines.
The most likely (outlook) at this stage is further declines
next year, but not as pronounced. However, we will still see
low double-digits in those kind of metrics next year," he
With the market still in a state of flux following the
meltdown in the sub-prime mortgage sector, attempts by the
steel framing industry to make inroads into the single-family
home market dominated by conventional "stick frame" or
"platform frame" construction using standardized dimensional
lumber have hit a roadblock.
A combination of softening demand for new homes and national
and regional home builders cutting costs makes selling into the
market ever more difficult. "In the end, it's motivated by
price," Curran said. "To whatever degree there has been
penetration, they (steel framers) probably lost ground because
of the consequence of the steady rise in steel prices. Lumber
prices have been generally moving down over the last couple of
years. They're down so far this year, so that's going to impact
the competitiveness of steel vs. wood." Framing lumber prices
are down about 10 to 10.5 percent currently compared with a
year ago, he added.
Meanwhile, hot-rolled and cold-rolled steel prices have
risen dramatically this year due to the weaker dollar
discouraging steel imports, forcing more consumers to source
material domestically. U.S. steel producers also are competing
more in the export market.
U.S. prices for hot-rolled sheet have more than doubled in
the past year to about $54 per hundredweight ($1,080 per ton)
as of early August from the same time last year. Likewise,
cold-rolled sheet has seen a dramatic shift upward, nearly
doubling from year-ago levels to $58 per cwt ($1,160 per
Steel frame companies also continue to battle the fixed
mindset of home builders who use wood because of their
familiarity with the product, despite steel framing having some
considerable advantages, notably in strength and ease of
construction, proponents claim.
But in the current climate, price is key, analysts say.
Credit Suisse analyst Daniel Oppenheim agreed that the
rising price of steel would be a key factor that home builders
would consider when looking at construction methods.
"House builders are doing everything they can to reduce
costs. Dismal would be a generous assessment of the market
right now. We will probably see a 10- to 20-percent decline
again next year, depending on several factors, like financing
from banks," he said. "Volume is down, so it's going to affect
suppliers. There's such an extreme focus on costs."
Steel framing has managed to corner certain sectors and
geographical areas of the market, such as Hawaii-where strict
building codes require structural stability, particularly in
the coastal areas, and resistance to termites.
But despite the strides made thus far, analysts agree that
the momentum toward steel is now slowing because of soaring
metal prices and the impact of the slowdown on home builders'
"Steel was certainly starting to become more accepted,
particularly in some geographical locations where strength and
coolness were often big considerations," one building materials
analyst said. "But this shift has slowed, mainly because of the
cost implications. House builders are trying to trim costs
wherever they can just to survive this downturn, and it won't
stop for some time to come. This is bad news for all