The trillion dollar infrastructure plan could stimulate demand for 50 million tons. But it would also add complexity to a volatile global demand and pricing picture.
It’s not quite a slam dunk, but recent developments in Washington, D.C., point toward the passage of a national infrastructure package in the coming weeks. In a deal struck between President Joe Biden and a bipartisan group of Senators, Congress will consider a $1.2 trillion infrastructure plan focused on traditional projects like roads and bridges, as well as rural broadband internet access, as a first step toward taking up a second bill that would pass with Democratic votes only.
50 Million Tons of Steel
One-trillion dollars in infrastructure spending would stimulate demand for about 50 million tons of steel, according to Fastmarkets, a commodities data provider. The second bill’s climate provisions, which reportedly include energy efficiency and weather resiliency measures, could also add to steel demand.
The prospect of massive infrastructure spending is partly responsible for a surge in steel prices. Futures contracts for hot-rolled coil steel, a key input for construction and automobiles, rose to an all-time high of $1,800 per ton right after Biden announced the bipartisan infrastructure deal, reflecting an expectation of increased demand. Steel prices are also being influenced by the import tariffs introduced during the Trump administration. Biden faces conflicting considerations over what to do about Trump-era trade restrictions on steel.
| Top Steel Exporters | ||
|---|---|---|
| Rank |
Nation |
MMT |
| 1 |
China |
51.4 |
| 2 |
Russia |
31.5 |
| 3 |
Japan |
29.8 |
| 4 |
South Korea |
27.6 |
| 5 |
*European Union (28) |
22.6 |
| 6 |
*Germany |
21.2 |
| 7 |
Turkey |
18.5 |
| 8 |
India |
17.1 |
| 9 |
Ukraine |
15.2 |
| 10 |
*Italy |
14.9 |
| 11 |
*Belgium |
12.9 |
| 12 |
Brazil |
10.6 |
| 13 |
*France |
10.2 |
| 14 |
Taiwan, China |
10 |
| 15 |
Malaysia |
8.4 |
| 16 |
*Netherlands |
8.3 |
| 17 |
*Spain |
7.9 |
| 18 |
Vietnam |
7 |
| 19 |
Canada |
6.9 |
| 20 |
United States |
6.3 |
| Source:World Steel | ||
Worldsteel has projected global growth in steel demand of 5.8% this year and another 2.7% in 2022. “Government recovery programs,” especially in the U.S. and China, will account for much of the forecasted growth, according to Saeed Al Remeithi, chairman of the Worldsteel economics committee. Demand will be aided by a strong recovery in auto manufacturing, where production levels in 2021 are expected to exceed 2019 levels, and global construction, which is expected to reach 2019 levels in 2022, according to Worldsteel. The Biden administration’s infrastructure investments “may have upside potential for steel demand in the longer term,” said Al Remeithi.
Companies like Volvo Construction Equipment are already experiencing robust year-over-year sales increases, with first-quarter sales up 23% and orders up 73% compared to last year. The company attributed those increases to “demand in China” which “was particularly strong because of government infrastructure investments.”
The company also reported that “market improvements” in North America were up 7% in the first quarter of 2021 “due to positive customer sentiment from expected government infrastructure investments,” although that figure was anemic compared to growth in some other global regions. Oxford Economics anticipates growth in the U.S. construction machinery market of 15.2% this year, saying proposed “government stimulus will aid recovery in 2021 and 2022.”
In the United Kingdom, the Construction Equipment Association (CEA) reported that first-quarter sales were up by 2.9% over pre-pandemic levels, but, not surprisingly, much lower than the 30% increase seen over 2020. Year-over-year results, since they reflect growth over the bottom of the COVID recession, are less instructive than those that compare current data to 2019.
The Dilemma Steel Tariffs
Another factor which will impact steel demand and prices is whether the United States and the European Union can agree to lift the steel tariffs imposed by the Trump administration. President Biden has displayed an appetite for repealing many Trump-era measures, but not when it comes to tariffs. He faces a political dilemma because he wants to ease tensions with European allies and faces pressure from domestic industries that rely on steel to lift the tariffs, but also faces opposing interests, such as the domestic steel industry and its workers.
Seven steel trade groups and unions recently sent Biden a letter urging him to keep the tariffs in place. “The tariffs were necessitated by repeated surges in steel imports driven by global steel overcapacity that threatened our industry and the nearly two-million jobs it supports,” they wrote. The tariffs, they asserted, “have been a success, allowing our industry to restart idled mills, rehire laid-off workers and invest in the future.” Removal of the tariffs may not serve Biden and his Democratic cohorts well in steelmaking strongholds like Pennsylvania and Ohio during the 2022 midterm elections and beyond.
If Biden’s spending packages will increase demand for steel, it could also send costs higher. Price surges could also be exacerbated by a continuation of the tariffs. One J.P. Morgan report noted that decades of lowering trade barriers has had a deflationary effect on the global economy, pointing particularly to manufacturing inputs that include steel. It’s difficult to “avoid the conclusion that de-globalization will be inflationary,” the report concluded.
But other experts disagree that tariffs, although they can drive up some prices, contribute to widespread inflation. Tariffs tend to increase the value of the dollar, they note, and that contributes to lower import prices.
The U.S. and the EU have initiated a process to discuss global steel excess capacity. A readout of the initial meeting acknowledged the adverse impact on U.S. and EU industries from global excess capacity, which they blamed largely on China, and they agreed to “partner to promote high standards, address shared concerns, and hold countries like China that support trade-distorting policies to account” by implementing “appropriate trade measures.”
But it’s unlikely any quick results will result from these talks. The Biden administration has its conflicting political interests to consider, which represent an incentive to slow-walk the process, and operates in a more deliberative manner than its predecessor. The EU, for its part, recently prolonged for three additional years its safeguard on imports of some steel products, the very measure initiated in response to Trump’s Section 232 restrictions on steel imports. The European Commission said it will “initiate a review if the U.S. introduces significant changes to its Section 232 measure on steel.”
It’s no wonder, then, that IHS Markit’s outlook is for “sheet prices to continue to strengthen,” although it forecasts a deceleration coming later this year. “There is no shortage of capacity,” the analysts’ report noted. “The problems were caused by capacity remaining idle too long after demand started to recover from COVID-19 lockdowns.”
| Top Importers of Steel | ||
|---|---|---|
| Rank |
Nation |
MMT |
| 1 |
China |
37.9 |
| 2 |
*European Union (28) |
32.6 |
| 3 |
United States |
19.9 |
| 4 |
•Germany |
18.2 |
| 5 |
•Italy |
15.5 |
| 6 |
Vietnam |
13.6 |
| 7 |
Turkey |
12.5 |
| 8 |
•France |
11.8 |
| 9 |
South Korea |
11.5 |
| 10 |
•Poland |
10.8 |
| 11 |
•Belgium |
10.4 |
| 12 |
Indonesia |
9.3 |
| 13 |
•Spain |
8.7 |
| 14 |
Saudi Arabia |
8.6 |
| 15 |
•Netherlands |
7.8 |
| 16 |
Taiwan, China |
7.3 |
| 17 |
Canada |
6.8 |
| 18 |
Philippines |
6.6 |
| 19 |
•Czechia |
6.4 |
| 20 |
Malaysia |
5.8 |
| Source: World Steel | ||
China’s Plans
China has also started enforcing emissions restrictions in northern steel-producing provinces, “further tightening global steel supply,” but these are expected to be relaxed, although not completely lifted, later this year. The extent to which prices will fall, according to IHS Markit, “depends on the extent that restrictions on steel production are retained or relaxed.” That’s why they advise buyers of steel to wait, if possible, or to include automatic price adjustments in their contracts. “The exception remains [steel] sheet in North America,” the report noted, in which case “ensuring availability is more of a concern than price.”
If Biden’s infrastructure package is not quite yet a certainty, then neither are any of these other factors potentially impacting steel demand and pricing. Rather, these considerations should be viewed through the prism of the economic, fiscal, political, and public-health uncertainties that Worldsteel expects to persist through the end of this year.
“The evolution of the virus and progress of vaccinations, withdrawal of supportive fiscal and monetary policies, and geopolitics and trade tensions,” its report concluded, “could all affect the [expected] recovery.”
