Worth its weight in steel: latest precious metal plays havoc with the construction industry.

• Author: Palmer, Robert B.
• Position: Advice / Construction

WHILE IT IS TOO SOFT FOR any practical use, gold has always enjoyed popularity as a precious metal and standard of wealth. Silver has also enjoyed a pretty good run as a precious metal. During the past century, platinum, a relative newcomer in the precious metals market, has enjoyed a surge in popularity, particularly in jewelry But who would have thought that one of the hottest metals in 2004, at least in terms of increasing value, would be steel?

Since this time last year, steel has almost doubled in value, which is far better than my 401(k) has done. In fact, that 1989 Jaguar in my garage that won't start is beginning to look like one of my better investment decisions if I could only figure out how to get it to the scrap yard.

Some market analysts describe the steel situation as the "perfect storm." China is buying approximately one-third of all the scrap steel in the world. Much of the steel used in construction comes from mini-mills in the U.S., which are dependent on scrap steel. The decrease in value of the dollar relative to other major currencies makes American steel and scrap more affordable overseas. All of this is compounded by rising energy costs.

Skyrocketing steel prices are playing havoc with the construction industry. While contractors are accustomed to routine fluctuations in the price of materials, the price of steel has been anything but routine. Suppliers this spring notified contractors that prices would increase 20 to 25 percent, then another 20 to 25 percent a month later.

Steel is integral to the construction process. When some materials increase in price or are in short supply, alternatives may be available. That is not the case with steel. Structural steel might be replaced by an alternative, but steel is used for reinforcing bar (re-bar) and wire mesh to strengthen concrete, for conduit for electrical wiring and in ductwork and other mechanical applications.

Because...