What influence does the manufacturing location have on the prices of welded steel structures and steel components, and when is low-cost country sourcing worthwhile to benefit from site advantages? How to get a meaningful price comparison for steel structures? These questions are essential for buyers of machinery and equipment companies to build their supply chain. The answer to this is highly individual and depends on many different factors.

Cost factors in steel construction

Simplified, the producer prices for steel construction ex-works are composed of three cost factors:

  • Labor costs (labor costs for cutting, welding, equipping, preserving and assembling the parts)
  • Material costs (costs for raw materials such as plates, beams, steel profiles or pipes, as well as auxiliary materials such as welding electrodes or grinding wheels)
  • Administration costs (building costs, quality assurance, distribution, payroll, distribution costs, levies, etc.)

In addition, the purchasing department must consider the internal costs for on-site supplier support as well as the delivery costs in order to reach a meaningful overall cost comparison.

Cost distribution in steel construction

The distribution of these costs depends largely on the complexity and nature of the steel components, as well as the manufacturing location.

Steel prices and material costs

The prices for steel are relatively homogeneous due to the open markets in Europe and do not differ significantly. At most, transport costs have an influence here, so that manufacturing companies have slight cost advantages in the vicinity of steel producers or dealers. Even worldwide, the prices differ only slightly, so there is hardly any potential savings here due to the long transport routes. For example, in November 2017 cost one tonne of hot-rolled strip steel in the US 574 €, in Europe 536 € and in China 451 €, with steel from China still adding about 20% of inches so that there is an equilibrium again (Source).

In coarse steel construction with high wall thicknesses and few processing steps, the material costs gain in influence, but due to the small differences here are no major locational advantages. With lighter steel construction with thin sheet thicknesses and more complex structures, the importance of material prices is lower. Component weight also plays a lesser role and contributes less to the overall cost. The less standardized the semi-finished products used are, such as sheet metal, profiles or tubes, the more the supply sources of the supplier also matter.

Energy and auxiliaries

Energy prices for industry in Europe vary by as much as 100%. In contrast to steel production and processing, however, the energy costs in the production of steel structures have only a small influence. According to Eurostat Serbia has the lowest electricity prices for industrial customers (0,05 € / kWh), the highest in Italy (0,15 € / kWh). Industrial customers in Poland or Hungary pay just over half as industrial companies in Germany.

Auxiliaries such as technical gases or welding electrodes are available at similar prices in all industrialized nations and hardly affect the final price of a steel construction.

Labor costs

The situation is quite different with regard to labor costs. The labor costs are the decisive cost factor in the production of steel components such as welded constructions. Especially for complex lightweight steel components with many processing steps, labor costs contribute disproportionately to the final price. However, this statement applies only to components with many manual steps. For orders with a high level of machine-made value added, such as the mass production of stamped parts, blanks or CNC bending, labor costs lose influence and other costs, especially transport costs gain more weight.

According to Eurostat, the cost of one hour of industrial work in the year 2016 in Germany was 33 €, in Romania only 5,50 €. The remaining labor costs of some important industrial sites of the EU can be found in the following table:

Country€ / h
Germany33,00
Austria32,70
Italy27,80
EU (28 countries)25,40
Slovenia16,20
Slovakia10,40
Czech Republic10,20
Croatia10,00
Poland8,60
Hungary8,30
Romania5,50
Bulgaria4,40

Not listed in this table is Switzerland, 2012, the labor costs in the industry according to statistical lexicon of Switzerland already over 50 € per hour. For this reason, labor costs in Switzerland have an above-average impact on steel construction prices.

Depending on the nature of the steel components, the EU average can be divided into approximately 35% labor costs, 40% material costs and 25% administration and other costs.

For a medium structural steel construction of commercially available steel plates and steel profiles (sheet thickness 5-10mm), the following average costs per kg result in the EU average:

  • Material costs incl. 20% offcuts and delivery costs: € 1,50 / kg
  • Labor costs: € 1,31 / kg
  • Administration: € 0,94 / kg

This results in a total price of about 3,75 € per kg welded structural steel construction, which is quite realistic in the EU average.

Cost comparison by producer country

If, instead of the EU average, the labor costs for other production sites are taken as the basis, the following cost comparison for steel structures results:

proportion ofEU-28GermanyPolandHungaryRomania
Labor costs per working hour

€ / h

25,4033,008,608,30

5,50

Material costs including delivery and 20% offcuts

€ / kg

40%1,501,501,501,50

1,50

Labor costs

€ / kg

35%1,311,710,440,43

0,28

Administration costs

€ / kg

25%0,941,070,650,64

0,60

total cost € / kg100%3,754,282,592,57

2,38

If one chooses Poland instead of Germany as the manufacturing location, 1,69 € can be saved per kg of steel construction. That's a cost reduction of nearly 40%. In Romania, even savings of more than 40% would be possible.

In this cost comparison, it was assumed that the administration costs also changed proportionally with the labor costs. The administration costs in this example therefore correspond to 25% of the total costs per kg of steel construction in all countries.

Calculate total costs for steel construction

When will the outsourcing of steel components to countries with lower labor costs be worthwhile? For this, one must consider the following cost factors in addition to the previously calculated direct costs for steel construction:

  • transport costs
  • Internal costs for supplier support
    • Quality Assurance
    • If necessary, costs for the translation of the construction documents, contracts and acceptance records
    • Travel expenses and telecommunication costs
  • rework costs
  • Costs for short-term required parts

When is low-cost country sourcing worthwhile for steel components?

Whether low-cost country sourcing of steel components in the individual case is worthwhile for purchasing or not can not be assessed on a flat-rate basis, but depends on factors such as:

Complexity of steel components

The more complex a component is, the more difficult it is to develop the supplier at a great distance. With large quantities and long-term requirements, however, it is worthwhile to produce at a favorable location, especially for complex, labor-intensive components.

Reference quantity or order volume

For one-off requirements, it is relatively expensive to develop a new supplier. Unless it is a question of very simple components or large individual projects, low-cost country sourcing is often too complicated. For recurring orders and corresponding purchasing volume, it is worth making the step abroad, even with more complex orders.

When is low-cost country sourcing worthwhile in steel construction?
Infographic: When is low-cost country sourcing worthwhile in steel construction?

Requirements for successful low cost country sourcing

For low-cost country sourcing to be a success, the course has to be set internally in the company and it must be clarified whether the company meets the necessary requirements.

Does the company have the necessary resources and the necessary expertise to find and develop the right supplier? There are countless steel construction companies, but which one can really meet the requirements? The search for the right steel supplier often resembles finding the needle in a haystack and often devours more time than expected.

Many times you wait in vain for offers. If you get them then often the price, the delivery time or the availability does not meet the original expectations. Many projects are unique and also the many steel suppliers have individual strengths and weaknesses. To find this out and to find the right partner for the right request has Jactio.com set itself the goal.

We find the right steel supplier for your project. We work for the inquirer free of charge and without obligation. Submit your request via our Contact form or by E-mail and we can provide you with up to three independent offers for your steel components.

Benefit from our experience and our constant exchange with customers and suppliers. We will find the right supplier for you.