US steelmakers are urging support of a multi-billion dollar infrastructure investment program proposed by President-elect Obama and Washington congressional leaders. They also want the stimulus package to include Buy America provisions requiring the use of US-made steel in any federally funded construction projects.

 

A number of steel producers would benefit from an infrastructure stimulus program because as much as 30 million-35 million short tons of steel go into public and private construction projects in a typical year, according to the American Iron and Steel Institute in Washington, DC. Construction is the single largest market for the US steel industry, which produced a total of 107 million short tons in 2007 and employed about 1.2 million people.

 

"A properly structured program will benefit everyone in the steel supply chain," said David Phelps, president of the American Institute for International Steel, which promotes international steel trade. Phelps warned, however, that Buy America preferences could deprive some nonintegrated steel producers who import foreign-made slab and billet to make steel in the US.

 

US companies primarily producing construction steels (rebar, plate, wire mesh, rail, beam, tubular goods) include Nucor, Gerdau Ameristeel, Commercial Metals, Steel Dynamics, Evraz, SSAB, US Steel Tubular Products and ArcelorMittal USA. There are also several hundred steel service centers, processors and fabricators that supply the construction trades.

 

Other steel producers that are more focused on supplying automotive and consumer goods markets -- like US Steel, Severstal North America, Republic, Latrobe and AK Steel -- may have to wait for a broader economic recovery.

 

"In our view, steel long products (rebar, beam) could see the most benefit from infrastructure stimulus," said Kuni Chen, head of US steel research at Bank of America. But a stimulus package focused on public infrastructure projects could divert financial credit, resources and materials from commercial construction markets, warned Chen. "In addition, stimulus benefits would be more back-end loaded into 2010 as there is a big lag time for engineering, design and bidding," he said.

 

Several steel suppliers told Platts they expect Congress will pass some form of a stimulus package and they anticipate orders from contractors to begin growing later this month and into February and March, ahead of the spring construction cycle.

 

"I'm hoping we would start to see new project orders in January," said the manager of a fabricated rebar business in Virginia.

 

BUY AMERICA INITIATIVE

"What we are asking is that our government deal with the worst economic slowdown in our lifetime through a recovery program that has in every provision a Buy America clause," Dan DiMicco, chairman and CEO of the country's largest domestic steelmaker Nucor, said in a recent New York Times interview.   

 

Nucor and other steel producers hope to benefit from a stimulus spending program to support construction of highways, bridges, port facilities, power plants and other public works projects. Such a stimulus package would help to reverse the current downturn in the domestic steel industry, which has resulted in production declines, plant closings and massive worker layoffs.

 

As a result of the slowdown, US steel mills operated at less than 50% of available capacity in November and ended December with a utilization rate of 33%. Mills operated at nearly full capacity in August when prices were at historic highs.

 

The Platts price assessment of rebar from Southeast US mills peaked in August at $1,000/st ex-works, before declining 48% to its current level of $520/st. The Platts reference price for plate reached a late-summer high of $1,445/st ex-works Southeast mills before diving 34% to the current assessment of $960/st ex-works.

 

"We need stimulus now," said Steel Manufacturers Association President Thomas Danjczek. He also urged lawmakers to include a Buy America provision. "The stimulus is to create jobs in the US, not elsewhere. The investment needs to be kept in the US," said Danjczek.

 

The US Conference of Mayors reports that there are about 11,400 infrastructure projects that are ?ready to go? if Congress approves a stimulus package. The group set the total cost of these projects at $73 billion and said that nearly 850,000 jobs would be created, mainly in the construction industry.

 

The Association of General Contractors said Thursday that an estimated two-third's of the country's non-residential construction firms were planning to lay off workers in the absence of a stimulus package, resulting in a 30% decline in the number of construction jobs on top of the estimated 770,000 jobs already lost over the past two years. AGC estimates that a stimulus bill may not clear the House and Senate until mid-March. –Platts