Biden infrastructure plan to increase steel demand

The $2 trillion infrastructure plan proposed by President Joe Biden in March would increase steel demand in the US and help prop up sagging private sector nonresidential investment.

The eight-year plan, which includes broader initiatives such as high speed internet connectivity alongside traditional infrastructure projects, would put about $200bn into road and rail projects, which would lift demand for long steel products such as reinforcing bar (rebar) and wire rod.

Long product demand is expected to increase by up to 3mn short tons (st)/yr for the duration of the investment period while flat-rolled demand could increase by 1mn st/yr, according to Phil Gibbs, equity research analyst at KeyBanc Capital Markets. Combined, that would account for 3-4pc growth in US steel demand based on the nearly 110mn st consumed in 2019, according to the American Iron and Steel Institute (AISI).

The increased demand could also prop up sagging investments by private industry in nonresidential construction, which has declined year-over-year for the last 10 months, according to data from the US Department of Commerce.

Private nonresidential construction consists of office buildings, hotels, and other steel-consuming structures that have seen investments fall off during the Covid-19 pandemic and slump as more people worked from home and stopped traveling.

Public infrastructure like roads and bridges could also consume some of the steel that the private sector is no longer using.

"The infrastructure bill is nice, but it may be necessary to offset the cyclical decline in private sector spending," Gibbs said. "And we don't know when this spending, if it comes to bear, when it all really plays out."

Gibbs also suggested the Biden Administration may use the infrastructure package, which will use higher corporate taxes to pay for it, as a reason to ease the 25pc Section 232 tariffs that were imposed on steel imports by then-President Donald Trump in March 2018.

Many have blamed the tariffs for keeping flat-rolled imports into the US at lower levels even as the steel price has more than tripled in the last eight months. The Argus US hot-rolled coil (HRC) Midwest assessment rose to $1,364/st on 13 April, up from a low of $450/st recorded in mid-August 2020.

Total steel imports in 2020 were 20mn metric tonnes (t), down by 21pc compared to 2019 and the lowest levels since 2009, according to the US Commerce Department.

While infrastructure packages are held up by many in the US steel industry as a boon for the market, whatBiden's plan will fund consumes less steel than the types of investments a country like China is making, said Andreas Bokkenheuser, an analyst with UBS.

"China is building infrastructure where there is no infrastructure, and that is very materials intensive," Bokkenheuser said. "That's not what we're doing. We are going to step in and repair existing infrastructure, which again, is just not overly materials intensive. It consumes materials but pound for pound it's not the same impact."

Bokkenheuser agreed that long products will benefit the most, and said that even with the 25pc tariffs, countries like Turkey have been able to import products like rebar, which is needed for the construction of roads and buildings. He expects that if the infrastructure bill is passed in mid-2021, that the steel industry should start feeling impacts within six to 18 months.

Out of the 981,000t of rebar products exported to the US in 2020, Turkey accounted for 424,000t of that figure, with Mexico, which has no tariffs on its exports to the US, and Spain making up the bulk of the remainder.

By Rye Druzin

Nonres private construction mn $