The steel industry stands to benefit if the incoming administration under President-elect Joe Biden makes infrastructure spending one of its key priorities, American Iron and Steel Institute (AISI) interim president and chief executive officer Kevin Dempsey said.
Investment in infrastructure - as well as matters of trade enforcement, notably the Section 232 tariffs and quotas - also benefits from bipartisan backing, Dempsey said in an exclusive interview with Fastmarkets this week.
“I think the steel industry has strong support in both parties… I think this transcends partisan politics,” Dempsey said.
Infrastructure - coming to a Congress near you in February
One thing that could help bridge the divide between Democrats and Republicans - which widens and narrows on a variety of issues - would be an early focus from Biden’s administration on a big infrastructure bill, Dempsey said.
And it’s not a pipe dream to expect action shortly after the new Congress sits down to work next year.
The first session of the 117th US Congress begins on January 3, 2021. Biden - who previously served as Vice President under President Barack Obama and as a Democratic Senator for Delaware - is expected to be sworn is as the 46th US president on January 20, 2021.
“I think we could very likely see House consideration of a major infrastructure bill in February - early in the new Congress,” Dempsey said.
Part of the reason for that optimism: Representative Peter DeFazio (Democrat, Oregon) - chairman of the House Committee on Transportation and Infrastructure - wants a “big bill right out of the gate in February,” according to Dempsey.
And a divided government - Biden has won the Oval Office, but Congress appears poised to remain split between a Democratic House of Representatives and a Republican Senate - might not be an insurmountable hurdle to a big, steel-intensive infrastructure bill, Dempsey said.
If anything, a divided government might result in an infrastructure bill focused more on traditional initiatives - such as roads and bridges - than on some of the so-called green developments favored by House Democrats, he said.
The upshot: “The Senate will have to consider their own bill, and it will go through some conference. But we’re hoping to see something done by this summer,” Dempsey said.
And Congress has learned from past mistakes when it comes to infrastructure packages.
“I think there is general recognition that the emphasis on ‘shovel-ready’ [projects, which required funds to be spent within 90 days,] with the Obama stimulus bill was a mistake in hindsight. It did too much paving and not enough long-term infrastructure,” Dempsey said. “I think that there will be a real effort to make sure that [long-term infrastructure] is the focus of the bill this coming year.”
And “Buy America” requirements, which specify that steel used in federally funded infrastructure projects be melted and poured in the United States, also have significant bipartisan support. The provision applies to traditional work such as roads and bridges, but could be expanded to other areas depending on how broad the scope of the potential infrastructure bill might be, he said.
The Biden-Harris administration plans to invest $1.3 trillion in US infrastructure, “using American-made product,” over the next decade.
The most difficult discussion will probably revolve around how to pay for the infrastructure package.
“Congress is going to have to sit down, roll up its sleeves and get to work on that,” Dempsey said. “But I think that can be done. And when you’ve got an economy that’s still struggling after the coronavirus shock, everything you can do to help boost economic activity and demand - broadly speaking - is good.”
Section 232 - here to stay, probably
Another issue that probably has bipartisan support is Section 232; the tariffs and quotas implemented under President Donald Trump have the backing of key Democratic constituencies, Dempsey said.
Case in point: Representative Connor Lamb (Democrat, Pennsylvania), who is Chair of the Congressional Steel Caucus and who was re-elected to Congress in last week’s general election, has been both “a big advocate for president-elect Biden” and “very supportive of the need to maintain strong trade enforcement through the steel tariffs and other actions,” according to Dempsey.
And the United Steelworkers (USW) union, which also backed Biden, is a strong supporter of Section 232, Dempsey noted.
Biden has said that he wants to review Trump’s tariffs after he is sworn in as president; that policy review could provide the steel industry with an opportunity to make its case for keeping the 232 duties in place, Dempsey said.
Past economic downturns - namely the Asian financial crisis in the mid-1990s and the Great Recession in 2008-09 - resulted in other countries pushing steel onto the export market and into the US.
“My concern would be if you just willy-nilly lifted the steel tariffs - not taking into account the global steel imbalances - that you would be ripe for another big import surge like we’ve seen after previous global financial crises,” Dempsey said.
And while steel demand might be strong in some segments of the economy, the steel-demand recovery from the Covid-19 pandemic has been uneven - “and we’re not out of the woods yet” when it comes to the virus, he said.
Dempsey also pushed back against the notion that more import supply was necessary because of long lead times and high prices for certain steel products.
Fastmarkets’ steel hot-rolled coil index, fob mill US averaged $34.49 per hundredweight ($689.80 per short ton) in the week ended Friday November 6, up by 1.6% from $33.96 per cwt a week earlier and by 54.2% from this year’s low of $22.36 per cwt during the week ended July 31.
While prices have soared recently amid tight spot supply, capacity utilization rates average just barely above 70%.
“We still have a lot of steel mills running well below their capacity, and we have blast furnaces that are idled… So there is room to expand production if the demand is there,” Dempsey argued.
Tackling trade issues (unilaterally) together
The Biden administration also will need to work with the United States’ traditional allies in the Americas, Europe and Asia to rein in a “global overcapacity situation.” That issue is most pronounced in China but is also increasingly a concern in Turkey and in Southeast Asia as well, Dempsey said.
Much of the excess capacity being developed in the Association of Southeast Asian Nations (Asean) region is funded by China as part of its “Belt and Road” initiative. That new capacity has already been a big problem for the stainless industry, and the carbon industry will see the impact as well, according to Dempsey.
But just because the US is working with its allies on this issue does not mean that Section 232 should be watered down.
“We can’t just start exempting whole continents from the 232, or you’re just going to create a new opportunity for transshipment and circumvention,” he warned.
Different regions - such as the European Union, which has enacted safeguard trade measures - might take different approaches to tackling the overcapacity problem. But the goal should be the same: “working together to prevent circumvention and evasion of our trade orders,” Dempsey said.