Benefits of infrastructure bill to reach US ferrous markets in 2023

Green shoots of increased demand will emerge in US ferrous markets courtesy of the Biden administration’s trillion-dollar infrastructure package in 2023, Schnitzer's executive vice president and chief strategy officer Richard Peach said at Fastmarkets’ Steel and Scrap Conference 2023 in Dallas, Texas

The much-lauded Bipartisan Infrastructure Bill, which was enshrined in law on August 10, 2021, will lead to increased rebar production by more than 65% compared with its predecessor — the Fixing America’s Surface Transportation (FAST) Act — adding additional capacity of an estimated 1.5 million tons per year and fueling additional demand for steel and recycled materials.

Additional demand for recycled materials would be almost equivalent to that of the new rebar capacity because it accounts for 98.50% of rebar production among certain leading US steelmakers, the majority of which is heavy melting scrap.“A lot of financial awards are being made [in this regard] but we certainly haven’t yet seen any of the benefits,” Peach said, citing the protracted process of permitting and entitling new infrastructural projects as the reason for the hold up.

But when they do hit, these financial initiatives will bolster the construction sector’s steel demand and in turn increase scrap demand, of which the sector already accounts for 38%.

Indeed, the Biden administration has already pledged approximately $180 billion in grants and awards specifically to transportation infrastructure, electric vehicle battery infrastructure and clean energy initiatives while the Department of Transport committed $1 billion to construct bridges, tunnels and highway interchanges in December 2022.

The FAST Act was signed into law by the Obama administration in December 2015 and authorized $305 billion in infrastructural spending between 2016-2020 — an average of approximately $153 billion per year.

Ferrous markets are still firmly in the “brown shoots” stage of recovery following a turbulent post-Covid-19 period. But as 2023 progresses, the requisite spending should trickle down through the market before being truly felt by stakeholders in 2024 and 2025.

“Patience is required, but there are strong prospects for the steel and scrap industries for this additional rebar because you need it as part of infrastructure,” Peach said.

Rising inflation and interest rates alongside soaring fuel costs have obstructed this huge demand boost up to now. These factors have conflated to make operation and production painfully expensive for many along the ferrous supply pipeline; those in the steel and scrap markets have felt the pinch as keenly as those in end-use markets.

Core annual inflation rates hit a 40-year high of 7.10% in the US in 2021, dropping to 6.50% in 2022. They were 1.40% in 2020. Consumers paid 14.30% more for electricity in 2022 — double the cost of inflation for the period, which further hampered industry. The Federal Reserve is expected to hike interest rates by a further 0.25 basis points to 4.50-4.75% in February.

These factors have softened many markets, including construction, putting a pin in many of the steel- and scrap-intensive infrastructural projects, which would have otherwise significantly increased demand since the bill was passed.

Residential housing markets have been particularly hard hit, with higher interest rates dampening demand for new houses, effectively putting the market on ice. But pockets of demand are still there, particularly on a commercial basis for data centers, laboratories and healthcare, concentrated in the West of the US, providing some optimism.

And federal procurement and funding — specifically the Buy Clean Act in support of using emissions friendly raw materials — will scrap further boost scrap and carbon-neutral steel demand when the spending hits the market. Schnitzer is well-positioned, having launched its net-zero product suite back in March 2022.

The steelmaker is bullish long-term for scrap while the market transitions further toward scrap-intensive electric-arc furnace (EAF) steelmaking — which currently accounts for 70% of US steel production.

This transition is further underpinned by a reduction in the usage of and investment in mined metals, which alongside the increasing EAF and decarbonization demand for recycled materials, is further signaling the “green” revolution.

The long-term outlook for scrap is very healthy

“The long-term outlook for scrap is very healthy. We are in a softer part of the cycle, but we are very focused on what we can control. We are happy after seven months of consecutively declining scrap prices to see prices go up in the domestic market. Export prices have risen. And while prices are still relatively low, they are still higher than the average of the last ten years,” Peach said.

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