But what happens when one of the most significant cost variables, steel, becomes increasingly difficult to predict?

With tariffs on many imported steel products reaching 50%, fabricators are facing a challenging question: “How do we quote a 12-month blanket purchase order today when we don’t know what our steel will cost six or twelve months from now?”

For Laser Precision Cutting, this is more than a theoretical economic question. It affects the prices we offer customers, the purchasing commitments we make to suppliers, and our ability to remain profitable while delivering the dependable service our customers expect.

The Tariff Doesn''t Stop at the Border

One of the biggest misconceptions we hear from customers about the steel tariffs is that only businesses purchasing imported steel are affected. The reality is much more complicated.

Domestic suppliers’ material prices respond to changes in supply, demand, import competition, and overall market conditions. In its September 2025 article, “Tariffs, Trust, and the Future of Industrial Fabrication,” SWF Industrial, a metal fabricator in Wrightsville, Pa., observed: "The ripple effects extend beyond imports." That short statement captures an important challenge for U.S. manufacturers. Domestic sourcing does not necessarily guarantee stable pricing.

The issue is not simply whether a company buys foreign or domestic steel. The issue is what the company must actually pay for the material when it is time to manufacture an order. For fabrication shops, these changes can be particularly difficult to absorb while operating on established customer relationships and competitive margins.

The Annual Blanket Purchase Order Dilemma

Blanket purchase orders are valuable arrangements for both manufacturers and customers. Customers gain a dependable source of components, predictable scheduling, and an agreed pricing structure. Fabricators gain visibility into anticipated demand, production planning opportunities, and the potential for more efficient material purchasing. Under stable market conditions, these arrangements can work well.

But consider a common scenario. A customer requests pricing for 10,000 components to be delivered over the next 12 months. The fabricator calculates the material requirements, determines how many components can be produced from each sheet, estimates manufacturing costs, and submits a competitive quotation. The customer accepts the price. Three months later, the steel supplier increases prices. Six months later, another increase occurs. The customer still expects the original unit price. The fabricator, however, must purchase material at the new market price. The question then becomes “Who absorbs the difference?” If the purchase order agreement does not address material price fluctuations, that burden may fall entirely on the fabricator, and the job that presented originally as a profitable production agreement may gradually become a financial loss.

Difficult to Eliminate Market Risk

That’s an incredible challenge for all fab shops, even those that have considerable control over their manufacturing processes. A fab shop can have improved nesting, reduced material waste, optimized cutting parameters, minimized handling, and schedules production very efficiently and still find itself in jeopardy. Maximizing sheet yields with close nesting is fundamental to the estimating and production processes, but operational efficiency has limits. When a company has already optimized its material utilization, it cannot simply manufacture its way out of every steel price increase.

A 20% increase in the purchase price of a sheet of steel raises the material cost of the parts produced from that sheet, assuming the same yield and no offsetting changes. The cutting program may be identical. The production time may be unchanged. The customer may receive precisely the same component. Yet the cost of producing that component has increased. This is why the tariff discussion must extend beyond manufacturing efficiency and into purchasing strategy, pricing policy, and contract management.

Rethinking How We Quote Long-Term Orders

The solution is not necessarily to eliminate annual blanket purchase orders or increase every quotation by an arbitrary percentage. Instead, manufacturers and customers need to reconsider how long-term pricing commitments are structured.

Several approaches deserve consideration:

1. Separate material pricing from manufacturing pricing. Material costs and manufacturing costs do not always change at the same rate. A fabricator may be able to maintain a consistent processing charge for a defined period while establishing a mechanism to adjust the material portion of the price. This gives customers visibility into what is changing and why.

2. Establish periodic material price reviews. Rather than committing to a fixed material price for 12 months, the agreement might provide for quarterly adjustments based on documented supplier pricing or an agreed market benchmark. A well-designed adjustment mechanism should recognize both increases and decreases.

3. Coordinate purchasing commitments with customer commitments. Buying steel upfront may protect against future price increases, but it also creates inventory and cash-flow exposure. If the customer is not obligated to purchase the full anticipated quantity, the fabricator could be left holding expensive material. A customer-backed material purchase commitment can help align the risk with the benefit of securing the price. It is also important to consider the cost of inventory and storage when purchasing upfront.

4. Communicate market conditions before they become a dispute. Customers need reliable pricing, but fabricators need agreements that reflect the actual economics of production. Transparent communication provides a foundation for managing both concerns. SWF Industrial describes the changing approach to bidding: "Shorter bid windows and increased reliance on firm quotes require fabricators to balance competitiveness with realistic cost protection." The company also discusses time-limited pricing and clearer terms for material fluctuations. That is a practical direction for the fabrication industry.

The Need for Risk-Sharing

When steel prices are relatively predictable, a fixed-price agreement may be manageable. When prices are volatile, however, a fixed-price contract effectively transfers future material price risk to whichever party agrees to absorb the difference. That raises an important question. Is it reasonable for a small fabricator to assume 12 months of material price uncertainty when neither the fabricator nor the customer can control the market? A more sustainable approach may be to establish terms that allow both parties to plan with greater confidence. Customers can receive dependable production capacity, quality, and delivery commitments. Fabricators can receive reasonable protection against material cost changes outside their control. The objective should not be to shift every cost increase to the customer. It should be to develop a fair, transparent, and workable method for managing uncertainty.

What Other Fabricators Are Saying

The challenges are not limited to one company or region. In March 2025, OSH Cut published a discussion featuring industry participants from precision sheet metal and tube fabrication businesses, addressing changing conditions in the fabrication market. The discussion''s host, Tim Heston, offered an observation that remains relevant: "A lot of things are changing, obviously." While the policy details have continued to evolve since that discussion, the underlying management challenge remains: Fabricators must make pricing and investment decisions before they know exactly how market conditions will develop. The American Institute of Steel Construction also maintains resources on tariffs and steel-related economic policy, reflecting the continuing importance of these issues throughout the steel supply chain.

For smaller businesses, however, the challenge is especially immediate. We must translate market uncertainty into actual customer quotations, supplier purchases, production schedules, and financial decisions.

Finding a Sustainable Way Forward

Steel tariffs are often discussed in terms of domestic production, international trade, and national economic policy. Those are important discussions. But at Laser Precision Cutting, the questions are much more immediate. Can we quote this job confidently? Can we secure the material? Can we honor our delivery commitments? And when the order is complete, will the business have earned a reasonable profit?

The goal is not to avoid long-term customer commitments. Those relationships are central to our business. The goal is to develop purchasing and pricing practices that allow us to make those commitments responsibly. That means examining supplier agreements, customer release schedules, material adjustment provisions, and the financial exposure associated with carrying inventory. It also means recognizing that the lowest quoted price today is not necessarily the most sustainable price for an entire year.

As the steel market continues to evolve, the ability to manage pricing risk may become just as important to small manufacturers as the ability to manufacture efficiently. And that is a conversation worth having across the industry.

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