Steel tariff: how can construction cost professionals manage steel price uncertainty

New policy developments on steel import tariffs could add further uncertainty to steel costs across the construction supply chain. Evidence from construction professionals who sit on BCIS’s expert panels suggests that concerns about future steel pricing and availability are already influencing market sentiment.

For those involved in client-side cost planning, understanding how these developments may affect steel and market behaviour will be important when assessing project risks, setting contingencies and managing commercial exposure.

Why are construction professionals concerned about steel prices?

From 1 July, steel import quota volumes are expected to fall by 60%, with most imports above the revised thresholds subject to a 50% tariff. The government also plans to introduce the UK Carbon Border Adjustment Mechanism from 2027 to address carbon leakage associated with carbon-intensive imports, including steel products, by applying a levy to some imports.

These measures are designed to support domestic steelmakers and environmental objectives. However, construction industry stakeholders have raised concerns about reduced access to lower-cost imports before domestic production capacity has expanded.

At the same time, wider economic and geopolitical uncertainty continues to affect energy markets and production costs. Together, these factors could contribute to higher or more volatile steel costs for contractors, with implications for project viability, margins and delivery.

Insights shared at a recent joint meeting of the BCIS Scottish Contractors Panel and the BCIS Scottish Tender Price Assessment Panel suggest that rising steel costs linked to geopolitical instability are already feeding through to the market. Panel members highlighted expectations of increased cost and price uncertainty with the rollout of planned tariff changes.

These conditions may influence contractor tendering behaviour. During periods of significant steel cost uncertainty or volatility, contractors often limit the period for which prices for works remain valid, or include provisions that allow prices to be adjusted in response to market movements. Similar approaches were observed in 2022 following Russia’s invasion of Ukraine.

How can client-side cost professionals manage steel price volatility?

For clients and client-side cost professionals, the challenge is not simply whether steel prices increase, but how to pre-empt the impact of policy change and market instability on contractor sentiment, steel supply and project costs.

In this environment, clear communication between clients, cost professionals and contractors from the outset becomes increasingly important.

The following principles are just a few of the measures that can help clients and project teams manage steel-related risks and support effective project delivery.

Manage steel price risk collaboratively

Clients and cost professionals should consider whether steel prices are best managed as a ‘collaborative risk’ cost item.

While clients and funders often seek cost certainty, transferring significant steel price risks entirely onto contractors may result in higher contingencies being built into tender prices or reduced appetite for certain projects.

Given current market sentiment toward the timing of tariff changes, contractors are more likely to take a more cautious approach to risk once the new measures take effect.

For clients, this reinforces the importance of considering risk allocation carefully from the project’s outset. While fixed-price arrangements may appear attractive during uncertain periods, a collaborative approach to managing steel-related risks may support more sustainable project outcomes for all parties involved.

For instance, by employing risk-sharing mechanisms such as fluctuation clauses or target cost contracts where savings and losses are shared.

Monitor and benchmark steel price movements

For those involved in client-side cost planning, understanding where steel sits within a project’s cost profile, and the potential impact of price fluctuations, is equally important.

Tools such as BCIS Price Adjustment Formulae Indices (PAFI) can help identify emerging trends in steel prices and support assessments of potential cost exposure.

Official data can, however, take time to reflect rapidly changing market conditions. During periods of disruption, price movements linked to geopolitical events may become apparent in the market before they are fully captured by published indices.

Monitoring steel prices should therefore be combined with robust benchmarking. This may include reviewing how individual steel prices behaved across relevant projects historically and assessing how comparable projects with a similar steel content performed under similar market conditions.

While the interaction between tariff changes and broader market volatility presents a distinct set of circumstances, previous periods of disruption can still provide useful insight. Following Russia’s invasion of Ukraine in 2022, for example, a number of steel products experienced substantial price increases that remained elevated for an extended period.

Taken together, these approaches can help clients establish more realistic budget parameters, better understand areas of commercial exposure and develop procurement strategies that reflect prevailing market conditions.

Scenario plan to account for steel price volatility

Scenario planning remains an important tool for managing uncertainty. Given the range of factors currently influencing steel prices, including global trade policy, supply chain disruption, uneven demand and contractor tendering strategies, it is difficult to predict future movements with a high degree of confidence. Relying on a single forecast may not fully reflect the range of potential project cost outcomes.

As the cost professionals, developing a series of cost scenarios that present different levels of possible steel price movement can help clients understand the potential implications for project budgets and viability. This can provide greater visibility of potential cost exposures and support more informed decision making.

Review design choices to reduce steel market exposure

For projects still in the design phase, cost professionals may also wish to revisit the extent to which project costs are exposed to steel market movements.

In some cases, project teams may consider alternative structural solutions to steel where these are technically and commercially appropriate. The suitability of different structural approaches will depend on project-specific factors, including design requirements, programme constraints, sustainability objectives and whole-life cost considerations.

The aim is not necessarily to replace steel, but to understand how different design choices could affect cost and procurement. Exploring these options early can help clients improve resilience to changing market conditions.

Strengthen project resilience through early engagement

Closer collaboration between clients and the supply chain has long been a priority for the construction industry. The need becomes more pronounced during periods of uncertainty when earlier engagement can support better cost visibility and project delivery.

This is pertinent as the industry considers the potential impact of new policy on the availability of steel in the UK. While tariff measures are intended to support domestic production, some in the industry are concerned about the future availability of certain steel products and the potential for supply constraints.

For steel-intensive projects, including transport infrastructure, high-rise developments, industrial facilities and data centres, continuity of supply is becoming an increasingly important consideration.

Some contractors have responded by ramping up steel procurement in advance of need, including on major infrastructure projects such as HS2⁽¹⁾.

Given this context, clients may benefit from engaging with contractors and suppliers earlier in the project life cycle to better understand potential procurement challenges, lead-time pressures and emerging supply chain risks.

Early market engagement can help clients understand whether contractors are adjusting pricing assumptions, risk allowances or procurement strategies in response to steel market uncertainty. This can provide useful context when developing budgets and procurement approaches.

Adapt contingencies to market conditions

Potential structural changes in the steel market should encourage cost professionals to treat steel as a material risk when developing contingency plans.

Contingency allowances should remain responsive to changing market conditions rather than being treated as a fixed percentage. This is particularly important after 1 July when the impact on the steel market and contractor behaviour is likely to become clearer.

Tariff exemptions are expected to apply to goods contracted before 14 March 2026 and imported between 1 July and 30 September 2026⁽²⁾. However, continued monitoring of market developments and steel price data will be essential to assess whether these transitional measures are sufficient to stabilise costs.

Cost professionals should regularly review project risk allowances and procurement assumptions to ensure budgets remain aligned with evolving market conditions and potential supply chain pressures.

Progressing projects amid continued steel market uncertainty

The full impact of the planned tariff changes on steel prices, availability and procurement behaviour will take time to emerge. However, the combination of policy change, geopolitical uncertainty and ongoing market volatility reinforces the need for a proactive approach to cost planning.

Projects that regularly review assumptions and adapt to changing conditions are likely to be better placed to manage uncertainty and make more effective procurement and investment decisions.

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^{(1) The Guardian- HS2 firm says new steel tariffs will ‘exacerbate’ cost pressures for UK construction industry – here}

^{(2) GOV.UK –  UK’s steel trade measure from 1 July 2026 - here}