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Steel Price Increase Slows Attraction Construction

Universal Orlando: Universal's reportedly shelved plans for its "Van Helsing" coaster at Islands of Adventure, and a nationwide increase in steel prices might be partly to blame.

From Robert Niles
Posted February 25, 2004 at 3:09 PM
A jump in the price of steel is driving up the cost of new theme park attractions. And it may have already led to the cancellation of one highly-anticipated new ride: the "Van Helsing" Robocoaster slated for Universal Orlando's Islands of Adventure.

A Theme Park Insider reader who posts under the name T.Holland Creative quotes one Central Florida contractor in a post noting Universal's decision to shelve Van Helsing:

"'There are rapid changes unfolding in the steel industry which are driving up our prices in unprecedented ways. By summer the industry is predicting that steel will be on allocation for the first time in our history. We have been informed that steel price increases alone will exceed 65% by summer.'"

As T.Holland Creative, who works in the attraction development industry, explains,
"This means that the price of a coaster or ride concept that was developed last autumn could as much as double by this summer. Further, it puts estimators in the difficult position of having to predict the cost of steel (not to mention the availability) one or even two years out."

Technology and industry competition have driven the cost of developing top-of-the-line attractions up over the $100-million mark in recent years. Add a sharp increase in the price of raw materials, and now even middle-of-the-road attractions may soon come with multi-million-dollar price tags that could have bought a park a blockbuster in years past.

Complicating the issue is a simmering trade dispute between the United States and the European Union, which this week got the green light from the World Trade Organization to put sanctions on U.S. steel due the U.S. government's failure to repeal a law that American companies have used to deter steel imports.

President Buch last year dropped some tariffs on steel imports to the U.S. after the WTO ruled them illegal. Experts said at the time that the move would lead to lower steel prices, but builders have seen a double-digit percentage increase in prices instead.


Comments in chronological order. Most recent at the bottom. Scroll down to respond.

From Derek Potter
Posted February 25, 2004 at 5:00 PM
good for companies like GCI...not so good for B&M

From Robert Niles
Posted February 25, 2004 at 5:35 PM
;-)

To be honest, though, even a woodie coaster requires steel in its construction, especially when you consider the infrastructure improvements that parks typically make to an area around a coaster when building it.

From Kevin Baxter
Posted February 26, 2004 at 2:00 AM
Oh no! Will this affect all the wild mouse coasters and Dumbo clones Disney has planned for the rest of its parks????

From T.Holland Creative
Posted February 26, 2004 at 7:42 AM
Don't forget, steel is used throughout attraction construction -- not just on coasters. Consider 'Men In Black: Alien Attack.' This ride was built inside what is called a Butler Building. It requires a lot of structural steel. Ditto with 'Mission: Space' or Spider Man.

From Ben Mills
Posted February 26, 2004 at 9:26 AM
Why is that, THC? Is it something to do with sound-proofing?

From T.Holland Creative
Posted February 26, 2004 at 9:35 AM
Structural steel is what they use to hold the building up. Columns and beams, etc.

From Russell Meyer
Posted February 26, 2004 at 10:00 AM
Steel is also used in rebar used in concrete pads and walks.

The steel situation has hit the construction sector incredibly hard, and the US's reliance almost entirely on domestic steel will come back to bite us.

From Tim Hillman
Posted February 26, 2004 at 9:51 AM
I'm curious, THC. From your experience, do you know what percentage of the total cost of a typical Disney or Universal attraction is in the materials?

I'm guessing that the cost of the materials would comprise less than 50% of the total cost due to the design and engineering elements. Depending on the type of ride being built, the percentage of the construction materials that are made of steel would be only a portion of the construction materials. So, it just doesn't seem to make sense that an increase in the price of steel would have that dramatic (more than 20%)of an effect on the total cost. Is the increase in the price of the steel a red herring or is it a viable problem that truly threatens the development of new rides and attractions?

Due to a lower emphasis on theming it would also seem that Cedar Fair and Six Flags would be taking a greater hit in the attraction construction budget than anybody else in this situation. Are they making sounds about this problem, too?

Something seems a little overblown about this whole situation. I hope Universal isn't taking a page out of Disney's book and coming up with flimsy excuses not to build quality attractions.

From Robert Niles
Posted February 26, 2004 at 10:20 AM
If you click on the first link in the top article, you'll see that this isn't simply an attractions issue. The steel problem lies at the heart of a developing trade war between the United States and the European Union. And the price of steel is threatening to depress commercial construction throughout the United States.

Couple that with Alan Greenspan's sobering -- if not frightening -- comments about Fannie Mae and Freddie Mac earlier this week (which did not receive nearly the coverage they deserve thanks to the gay marriage amendment -- hey, look at the monkey! Look at Chewbacca!), and the nation could be facing a crisis in the commercial and residential real estate markets. And since real estate prices are supporting the nation's consumer credit bubble, America's economy is toast if either the commercial or residential real estate market falters.

So, yes, the steel price issue is a huge deal. Not just for the immediate increase in materials costs, but also for the long-term affect it could have on the economy and consumers' financial ability to afford theme park vacations.

From Tim Hillman
Posted February 26, 2004 at 12:34 PM
Robert, I agree with you that the increase in steel prices has far greater ramifications than just the theme park industry, but I wonder if a lot of the news isn't just hype by sectors in the affected industries trying to profit from a temporary situation. (The news media is not exactly blameless in this situation since we all know the old adage that the only news that sells is bad news. Catastrophe! Disaster! Horrors!)

I've been around long enough to have seen this before, and I'm not overly concerned. Remember the shortage in microprocessors due to the fire in a production plant somewhere in the Far East? Yes, there was a short bump up in the prices of equipment using those microprocessors for a while, but the situation corrected itself in a reasonably short period of time.

I can recall just a few short years ago when domestic steel producers were begging for tariffs because they were getting creamed by foreign steel producers "dumping" cheap steel in the US market. I think that was the impetus for the tariffs that President Bush not-so-wisely placed upon certain types of foreign steel. Now we seem to have an international shortage of steel and domestic production capacity is inadequate to keep up.

If this is truly an international situation, it should be sorted out in a reasonably short period of time. Experts have placed the blame for the shortage on extra-heavy demand in China. If that is the case, then they will be far more afffected by an increase in steel prices since the cost of raw materials in their finished product is a higher percentage than here. (The price of labor and overhead being the difference.) China has to compete for many of the same steel supplies that we do and they will be hurt more than we will by rising prices and will have to cut their demand accordingly.

According to the MEPS website, the price of hot-rolled coil steel has approximately doubled in price since 2001 with a recent surge contributing to much of the increase. So, yes, there is a significant increase in the price of steel, but how much should that effect the overall cost of developing a new attraction like the Van Helsing Robocoaster at IOA? I still think there's more to this situation than what's being publicly stated.

From T.Holland Creative
Posted February 26, 2004 at 1:26 PM
Mr. Hillman makes some excellent points, but he misses one element. You are estimating construction costs two or three years out. Then once you have addressed that cost, you have to match it against the impact that you are PREDICTING the attraction will have on your gate.

Universal went into Van Helsing with a projected budget of $55 million. I believe they may have underestimated the cost and as they looked closer at the project they realized it was going to cost substantially more. While the rising cost of materials (including steel) was probably not the sole reason for that price increase, I have little doubt it was a contributing factor.

In a related point, all construction costs are subject to an annual attrition. The longer Universal waits to build a prototype attraction for IOA, the more it is going to cost.

From Russell Meyer
Posted February 26, 2004 at 5:01 PM
Also, every year they delay, the more capital they have available to spend on a new attraction. It's very difficult to biuld "huge" attractions every year, which is why most parks go through a cycle of a few years of "smaller" attraction in between debuts of "large" attractions. The only problem with IOA is that they haven't even installed a "small" attraction since Spiderman opened. Most of the capital investment has been made in USF, and in fact USF has been on a very stead schedule of attraction upgrade and replacement, while IOA is left to tarnish.

I think USF is taking away from IOA's luster, and it may be a tug-of-war between the parks that may continue cyclically over the next decade.

From Robert Niles
Posted February 26, 2004 at 5:59 PM
Actually, IOA did install Storm Force and Flying Unicorn after the park opened. As well as revamping Poseidon's Fury.

So that'd be three small attractions there. But it has been more than a couple years now since those opened.

From Ben Mills
Posted February 27, 2004 at 10:44 AM
Did Spidey open at the same time as the rest of IoA?

From Kevin Baxter
Posted February 28, 2004 at 2:15 AM
Yeah. As long as weeks or months don't count. But it was open during the "official" opening.

From T.Holland Creative
Posted March 9, 2004 at 8:39 AM
Something to consider the next time you wonder why park owners are so slow to invest in new attractions. The sub-contractor I work for has been doing work at one of the DIsney resorts. In front of me right now is a list of 25 items that they need completed. These items include mundane things like drywall framing an ATM machine, repairing a door frame, patching a ceiling, etc.

Once all 25 items are complete, Disney will be writing us a check for well over $100,000.

Maintaining large resorts -- and preventing them from looking TERRIBLE -- costs thousands, and sometimes, millions.

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