How to Buy Steel for a Fabrication Shop: Suppliers, Stock, Freight and Margin

How you buy steel decides more than what's on the racks. It sets your cash flow, how fast you can quote an urgent job, and how much margin is left when the job ships. The gap between when you pay your steel supplier and when your customer pays you is at the heart of any good steel buying strategy.

This guide covers what to forward-buy and what to buy as needed, how to work with steel suppliers, freight and delivery, and how buying decisions flow into your quotes.

Plan purchases around a bell curve

Not every material deserves the same buying approach. Picture your consumption as a bell curve. It usually comprises:

• The middle: mild steel from 2 or 3 mm up to 12 mm. This is the bulk of most shops' work. Forward-buy it.
• The thin end: cold rolled and thin sheet. Buy as needed, even if small quantities mean you have to use different suppliers.
• The thick end: 16, 20 and 25 mm plate. Top up monthly, and add a few sheets to each bulk order.
• Stainless and aluminium: buy project by project, but keep a minimum range on hand.

In most job shops mild steel is around three-quarters of material use, with stainless and aluminium making up the rest. Shops in coastal or tropical areas can run much higher on stainless and aluminium. You'll want to understand what you're currently using and the positioning of your business when you make your own bell curve.

Forward-buy the middle of the curve

For the mild steel you know you'll use, the cheapest and safest approach is to forward-book it.

Work out what you'll consume over the next three months. Say it's 30 tonnes across 3 to 12 mm. Place one order for the full 30 tonnes, delivered 10 tonnes a month. You take every delivery regardless, because hot rolled mild steel doesn't spoil and you know it will get used.

Booking 90 days out means you're buying January's steel in October. Your supplier rolls your order in with its other customers' forward orders and buys from the mill on those projections. That volume predictability helps you get lower prices.

Two rules:

• Only forward-buy hot rolled. Cold rolled comes sealed and starts to rust once the pack is opened, so buy it when a job needs it.
• Time orders to your billing cycle. For example, if you place the month's order late in the month and ask for it to be invoiced and delivered on the 1st, it becomes a regular feature of your monthly profit and loss statement. That makes your accounts easier to manage and shows you more clearly what's happening in the business.

Top up thick plate with your bulk orders

Thick plate moves slowly and ties up a lot of money per sheet. Top it up monthly rather than stocking deep.

When the bulk truck is coming anyway, add a couple of sheets of 20 and 25 mm. It builds the load towards the tonnage that gets you the best freight rate, and keeps you covered for the next heavy job.

Stainless and aluminium: carry a minimum range

Stainless and aluminium are usually bought per project. Still keep a small range in common grades and thicknesses, such as 316 and 304 stainless and 5005, 5052 and 5083 aluminium. If one item is a steady seller, buy it by the pack. One Tempus Tools customer, who runs a small single-laser shop, buys 3 mm 5005 aluminium by the pack because local customers keep ordering it for ute canopies and doors.

Be careful with expensive thick stainless. A full sheet of 25 mm 316 can take a long time to use up. The alternative is to buy only the piece you need. Many suppliers will cut a 1200 x 1500 mm piece from a plate and sell you that.

What carrying stock costs

Stock is money sitting on the floor. That same single-laser shop carries around $160,000 of material and turns it over about eight times a year. They'd like it to turn faster, but in a regional town the stock is what lets them take urgent work. When a boat is stuck waiting on a 316 stainless part, the customer can't wait days for material to arrive from the city, and they'll pay a premium to get it now. That premium only exists if the material is already on the rack.

Build relationships with steel suppliers

Price matters. As one shop owner put it, "$50 a tonne is $50 a tonne." Let suppliers know they have competition.

But spreading your buying across every supplier in town costs you something price can't buy back. A supplier you buy most of your steel from will extend your terms an extra 30 days in a tight month, and will find 5 tonnes of 25 mm and get it on the truck when you need it in a hurry.

A practical setup is one principal supplier for the bulk of your tonnage, with a smaller share to a local supplier for convenience and top-ups. When a competitor offers you a lower price, take it to your main supplier: "I've been offered $50 a tonne less, but I'd rather stay with you." More often than not they'll meet you, or meet you halfway.

Watch suppliers who start cutting

Some steel service centres add laser cutting. When they do, they can price their cut parts on what the steel costs them, while you're paying their price plus your margin. If you buy at $1,550 a tonne and add 20%, your material is in the quote at $1,860 a tonne. Theirs goes in at $1,550. Know which of your suppliers are also your competitors, and don't build your whole supply around one.

When going direct to the mill makes sense

Buying direct from the mill needs serious volume and cash. A container-sized commitment can run to $300,000 of steel. Letters of credit can help with payment, but you still need to sell it all. For most job shops, a good service centre relationship is the better deal.

Minimum order quantities and part sheets

Service centres will sell you part sheets, down to a quarter sheet. You pay for that convenience, because the supplier has to cut it and keep the offcut. Before buying a part sheet for a one-off job, compare the price per kilogram with a full sheet, and be honest about whether you'll use the rest. Stock that sits for a year isn't a saving.

If you sell part sheets or offcuts to your own customers, price them as a cut part, not raw material. Charge as if you'd cut the rectangle, and put a proper margin on the material.

Freight, mixed loads and delivery

Freight changes the economics of every order, especially outside the big cities.

• Build full loads. Bulk mild steel arrives most economically as a full truck. Mix in thick plate, stainless or aluminium to reach the tonnage.
• Compare all-up prices. In regional areas, local suppliers bring their steel up from the same city you would. Once freight is included, buying direct from a city service centre and buying locally often land at the same price per tonne.
• Set pack weights. Tell your supplier the maximum pack weight you can unload. If your forklift is rated at 2.5 tonnes, ask for packs of 2 tonnes or less.
• Rotate stock as it lands. Put new deliveries under existing stock so the oldest material is used first. Keep thick plate (12 mm and up) in floor bays and lighter packs on the first beam level. Our guide to sheet metal racking and storage covers the layout.

Keep material certificates with the batch

Every delivery comes with a heat number and material certificate. Using stock first in, first out keeps those certificates matched to the sheets you're cutting. The best practice is to record the certificate against each nest, so a question about any part can be traced back to the batch it was cut from.

Buying steel for quick-turn jobs

Urgent jobs are where buying and quoting collide. If the material isn't in stock, the quote depends on the supplier's lead time, freight and any rush charges, and on whether a substitute grade is acceptable to the customer.

Price that in from the start. A customer with a machine down will pay for speed. Quote a premium on the cutting and on the material, and only promise a date once the supplier has confirmed the stock. Some shops take this further and run a second Web Store under a separate brand for rush work, with higher pricing than their main store.

How steel buying affects quoting and margin

Material is usually the biggest part of a laser cutting quote, so buying decisions show up directly in your margin. The real cost of material in a job includes:

• The price per tonne you actually paid
• Freight, rush charges and minimum order costs
• Offcuts and scrap, less what you get back for the scrap
• The cost of carrying stock until it's used

A healthy material margin on mild steel is around 20%, measured after scrap. Work it out as material revenue plus scrap revenue, minus what you paid for the steel.

That margin only holds if the prices in your quotes are current. If steel goes up $100 a tonne and your price list doesn't, every quote you send gives away margin. Our guide to how material prices affect laser cutting jobs shows how quickly it adds up. A steel weight calculator helps check what a part or sheet should cost by weight.

Common mistakes when buying steel

• Leaving it to the last minute. Poor planning is the biggest one. A rush order means no time to negotiate, and the material price eats the profit on the job.
• Chasing the cheapest supplier every time. You save a little per tonne and lose the relationship that gets you credit and urgent stock.
• Forgetting freight. The cheapest price per tonne isn't the cheapest delivered.
• Over-buying for one-off jobs. A full sheet of expensive plate for a single part ties up cash for months.
• Forward-buying cold rolled. It rusts once the pack is opened.
• Quoting before confirming stock. The price and date both change if the material isn't there.
• Stale prices in quotes. Steel prices move, and old prices quietly cut your margin.

Keep material prices current in your quotes

Buying and quoting are one process. The supplier relationship gets you a fair price. Your quoting system has to carry that price through to every job.

Tempus Tools keeps material prices in one place. Update a price once and every new quote uses it. Material sits alongside your machine rates, cutting and secondary processes in the same pricing rules, so the whole job is priced the same way whoever does the quote. See how it works for fabrication shops, job shops and sheet metal shops, or read more about fabrication estimating software.

Negotiate, and pick a principal supplier

Buying steel well isn't about the lowest price on every order. Forward-book the steel you know you'll use, keep a lean range of the rest, build loads that make freight worthwhile, and give most of your business to one supplier who'll look after you when it counts. Then make sure your quotes use what the steel actually costs.

The advice from one long-time shop owner was simple: "Negotiate, negotiate, and have a principal relationship."

Frequently asked questions

How do fabrication shops buy steel?

Most shops buy from a steel service centre. Mild steel that's used every week is forward-booked, often 90 days out with monthly deliveries. Thick plate is topped up monthly. Cold rolled, stainless and aluminium are bought as jobs need them, with a small range kept in stock for urgent work.

What should you check before buying steel for a job?

Check the grade, thickness and sheet size the job needs, whether you already have it in stock, the supplier's lead time, and the delivered price including freight. For one-off jobs, decide whether a part sheet or cut piece is cheaper than a full sheet you may not use.

What is a minimum order quantity when buying steel?

It's the smallest amount a supplier will sell. Service centres will usually sell part sheets, down to a quarter sheet, at a higher price per kilogram. Mills and bulk deals need much larger orders. Buying more than a job needs ties up cash in stock that may sit for months.

How do freight costs affect steel buying?

Freight can decide which supplier is cheapest. A full truckload carries the best rate, so shops add thick plate or other materials to reach the tonnage. In regional areas, local suppliers pay the same freight from the city, so the delivered price per tonne often ends up the same.

Is it better to buy steel from one supplier or multiple suppliers?

Most shops do best with one principal supplier and a smaller share to a second. Concentrating your volume gets you better prices, extended terms in a tight month and priority on urgent stock. Keeping a second supplier gives you a price check and a backup.

How does steel pricing affect fabrication quotes?

Material is usually the largest cost in a laser cutting quote. If steel prices rise and your quoting prices don't, every quote gives away margin. Keep material prices current, include freight and scrap in the cost, and price urgent jobs with a premium on material as well as cutting.

See how Tempus Tools helps fabrication shops quote with current material costs and consistent pricing rules, or book a demo.