North American steel: The backbone of US infrastructure

With Biden's Infrastructure Investment and Jobs Act finally passed, what lies ahead for the steel markets and supply chains?

After months of deliberation and compromise, the US Congress passed President Joe Biden’s promised infrastructure plan, the Infrastructure Investment and Jobs Act. It is steeply scaled back from the initial proposed American Jobs plan but still retains its potential to have profound effects on steel markets and supply chains.

The plan

The infrastructure plan is now worth $1.2 trillion, eliminating the $400 billion support for the aging and disabled as well as $100 billion for workforce development from the original American Jobs Plan.

In this legislation, traditional infrastructure spending remains a focus with about $500 billion headed toward roads, bridges, ports, airports, public transit and freight. A focus on the environment and the technologies of the future retains a foothold in the current plan with about $80-100 billion earmarked toward improving broadband infrastructure, access to low-cost internet, increasing the fleet of electric buses and ferries, improving the electric charging network, and environmental remediation.

While not the size of the original American Jobs Plan, this legislation will still support growth in the commodities markets. Transportation infrastructure directly supports steel demand while the environmental aspects are indirect contributors to steel demand.

Steel still gets a boost

Speaking at the Fastmarkets Steel Success Strategies conference in early November, just as the bill was headed to the President’s desk to be signed, Kevin Dempsey of the American Iron & Steel Institute (AISI) stated that the legislation could provide as much as 40-45 million net tons (Mt) of additional steel demand over the next five years.

Any growth will be pleasing to an industry that’s lost another 4% per year over the past five years and remains loosely predicated on the assumption that for every $20k spent on “infrastructure”, an additional ton of steel is required. The AISI estimates that $850 billion dollars of the plan provide both direct and indirect effects on steel, some of which could be felt in the markets as early as next spring.

A key aspect of the law is the more stringent Buy America requirements, meaning that the demand generated by this investment is “all going to American steel,” according to Dempsey.

While traditional infrastructure spending will support consumption of rebar and other long products in particular, the development of broadband, electric vehicle charging networks, and green energy, for example, will see elevated demand for other products such as steel plate, coils, or pipe and tube – both for structural and conveyance.

Panelists at the conference, representing producers, traders, distributors and OEMs, touted the steel demand boost that will come from the targeted spending.

And the investments could help steel end markets grow. Significant challenges from crumbling infrastructure represent time and money lost in transporting goods and offering services, according to a note by the US Chamber of Commerce.

“GDP will increase, as the improvements to infrastructure lead to more revenue and productivity for businesses. Exports will increase, as infrastructure improvements reduce business costs and make US products and services more competitively priced,” the Chamber said in a summary of the positive effects of the bill.

Positive outlook for steel

Nevertheless, the expanded demand growth at the start will be met by persistent steel supply shortages and high prices, which started in late 2020. US hot-rolled coil prices indexed daily by Fastmarkets hit all-time highs in 2021. Prices peaked in late September but are down only 10% through November 19. Rebar prices, in comparison, remain at record-high levels with expectations for further increases in the near term as a result of long lead times and uncompetitive imports.

Moreover, even with new steel capacity entering the market in the next two years, prices could still be elevated by historical standards.

Indeed, the viability of new EAF steelmaking capacity coming onstream in the US over the next several years is not so controversial, with expected future market conditions demonstrating the need for new US steelmaking capacity. Indeed, assuming non-infrastructure demand remains stable, then without new capacity, imports will still be needed to supply the new requirements or make up the shortfall in domestic supply.

While Fastmarkets continues to forecast that prices have farther to fall over the next year, positive underlying supply and demand fundamentals will keep prices from collapsing; contrary to what we have seen in numerous previous market cycles. Instead, we are forecasting annual average steel prices to remain well above long-term historical averages in the coming years, which raises the costs and viability of these initiatives. The allotted funds may not stretch as far as envisioned when the original American Job Plan was floated in Spring 2021.

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