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“OVERALL the US construction sector is likely to grow at a moderate, but unsteady, pace,” says Ken Simonson, chief economist for the General Contractors of America (GCA). He notes that while put in place construction spending, as reported by the US Commerce Department, was up 4% in 2016 and is likely to increase another 2-7% this year, the market is also mired with more uncertainty than previously anticipated, including whether the new administration will be able to get Congress to approve its promised $1 trillion infrastructure investment plan and how they propose to pay for it.

Due to the nature of recent projects, of those that are anticipated going forward, as well as the influence of non-metal related factors, the steels used by the US construction sector, such as structural shapes, reinforcing bar (rebar), plate and pipe, are actually getting a bigger boost than overall construction numbers would indicate, Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa., points out. He says that his company’s steel construction usage index, which is a weighted index of actual steel product consumption by the US construction sector, indicates that after declining 2.1% in 2015, steel use for non-residential and public works, or infrastructure, construction applications was actually up 5.7% last year and is forecast to grow by another 4.3% this year. This compares with projections of only a 1.9% increase in value put in place for non- residential construction and a 1.7% decline for public works.

It, however, is much more in line with projections for building construction on

a square footage basis, which, according to John Cross, vice president of the American Institute of Steel Construction (AISC), is expected to see a 5% increase in 2017 overall, resulting in a 6% growth in consumption for structural steel in building applications.

Cross observes that while dollars spent for US buildings construction have already returned to 2006-07 peak levels, that isn’t the case when looking at it on a square footage basis, largely given that so much construction is being done in cities where construction costs are higher. While up

considerably from the 700 million square foot trough in 2010, the current rate is only 1.2 billion square feet, still only 67% of the 1.8 billion square foot peak.

While up from last year, it still won’t be a boom year either for the domestic construction industry or for those steel products used in construction, maintains John Anton, director of steel analytics for the pricing and purchasing service of IHS Markit.

Plummer estimates that US consumption

of heavy structural shapes will grow by another 4.7% in 2017 following their 8.4% increase last year. He estimates that US rebar consumption will see a 4% improvement this year following a 4.7% increase in 2016.

This, however, depends upon what happens on the public works side of the equation. Scott Hazelton, managing director of IHS Markit’s economics and country risk service, says that should an infrastructure investment package be passed in its entirety this summer or early autumn, which isn’t very likely, it

could result in as much as 8% growth this year. It is more likely that there will be 3% construction growth this year with potential of 8-9% growth next year should a $500 billion-$1 trillion 10-year package be passed, although it is more likely that Congress will only get through a $250 billion package, Hazelton predicts.

With projected increases in steel-related construction, steel companies will increase their production to meet that demand, but, according to Vinicius Pires, market

* USA correspondent

If Trump’s as good as his word…

After lagging the recovery seen by several other areas of the US economy for a number of years, it appears as if the construction sector, as well as the steels consumed by it, is finally turning the corner, especially if infrastructure investment plans, as well as certain other policies being proposed by the Trump administration, actually come to fruition. By Myra Pinkham*

President Trump’s plans could be good for the structural steel industry

Myra structural.indd 1 18/05/2017 11:40:19

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www.steeltimesint.com May/June 2017

intelligence manager for Gerdau Long Steel North America, Tampa, Fla., that doesn’t necessarily mean that they will be expanding their production capacity. He says that currently most US long product producers are operating at only 65-70% of their rated capacity. “So there continues to be room for demand to pick up without the need for additional capacity,” he says.

That isn’t to say that there haven’t been any construction/infrastructure-related capacity additions. Commercial Metal Co.’s (CMC’s) 350,000-short ton-per-year rebar micromill in Durant, Okla., is slated to come online this autumn, and there are plans by JSW Steel North America to install an electric arc furnace at its plate and pipe mill in Baytown, Texas, within the next 20-22 months. But with the current excess in production capacity, Pires says that other construction-related expansion projects aren’t likely to be announced, at least not until the government puts more money into infrastructure.

“In order for our economy to remain internationally competitive, a strong commitment to robust infrastructure spending – which includes long-term transportation funding – is critical,” says Thomas J. Gibson, president and chief executive offi cer of the American Iron and Steel Institute (AISI).

Philip K. Bell, president of the Steel Manufacturers Association (SMA), says it appears as if the new administration is very serious about boosting infrastructure investment, building upon the $305 billion, fi ve-year Fixing America’s Surface Transportation Act (FAST Act) passed late in 2015.

While the fi rst long term highway bill in over a decade, AGC’s Simonson maintains that the FAST Act largely only “raised false hopes.” Even though it did give state and local governments better certainty of continued funding for their projects than the short-term highway bill expansions that proceeded it, it is only expected to keep this year’s federal infrastructure spending fl at at 2016 levels, which were already very low. Simonson points out that total federal, state and local government construction spending was only up 1% in 2016, which is much smaller than the 6% rise in 2015.

It also included only limited funding for port multi-modal projects, as opposed to the 100% intermodal Transportation Investment Generating Economic Recovery

(TIGER) grant programme, which was launched under the 2009 economic stimulus programme, observes Aaron Ellis, spokesman for the American Association of Port Authorities (AAPA). Ellis says that his association objects to the contention by the Trump administration that the TIGER grant programme and the FAST Act are duplicative and that, therefore, the TIGER grant programme should be eliminated.

Gerdau’s Piris, however, points out that federal funding accounts for only 2% of total US construction spending with 77% of all construction projects being private in nature.

Federal funding accounts for

only 2% of total US construc-

tion spending with 77% of all

construction projects being

private in nature

Myra structural.indd 2 18/05/2017 11:40:23

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“That is where there is the greatest potential for growth,” he points out.

“While we applauded Congress for passing the FAST Act, it didn’t provide enough funding to significantly move the needle,” Bell says, adding that he is optimistic that the 10-year infrastructure investment package that Transportation Secretary Elaine Chao says will be unveiled later this year, will have much more of an impact. Not only does it have three times the funding level (assuming that the entire $1 trillion level is passed by Congress, which isn’t a certainty), but it defines infrastructure more broadly.

Alex Carrick, chief economist with Cincinnati-based ConstructConnect, explains that while when most people think about infrastructure, they think about such “hard” infrastructure as roads, bridges, sewers and water mains, as well as certain construction at the ports and airports, infrastructure can go beyond that, to include things like power plants, water distribution systems, the power grid, broadband communications and such alternative energy as wind and solar and could even refer to such “soft” infrastructure as schools and hospitals and liquefied natural gas (LNG) export facilities.

Already some of the new administration’s policies, including some of the executive orders that President Trump has signed, are beginning to have a positive impact upon infrastructure construction, especially under this broader definition of infrastructure. Piris says this includes the executive order that allowed the Dakota Access and Keystone XL pipeline projects to proceed as well as to order the Commerce Department to develop a plan to require any company that builds a pipeline within US borders to use American material and equipment.

Even though about 95% of the steel

for the Dakota Access and Keystone XL pipelines have already been purchased, Mario Longhi, chief executive officer of Pittsburgh-based United States Steel Corp, says it will benefit steel suppliers for future pipeline projects.

Piris says given that oil prices have been recovering since last September and have been consistently maintained at $50-$55 per barrel in recent months, this is likely to help support further pipeline projects. Also, AGC’s Simonson points out that a number of Federal Energy Regulatory Commission (FERC) approved natural gas pipeline projects that had previously been put on hold could possibly be revived.

“I think we will also continue to see growth in power generation, including natural gas-fired power plants and wind and solar energy,” Simonson says, observing that overall power-related construction was up 4% in 2016 and should see another 5-10% improvement this year.

According to their most recent Port Planned Infrastructure Investment Survey, released a little over a year ago, AAPA’s member ports and their private sector partners were planning to invest $155 billion in capital investment projects in 2016-20, which is a three-fold increase versus the $49 billion level in 2012-16. Ellis says the majority of these investments are expected to be steel-intensive.

Plummer says as of February on a value put in place basis, highway and street construction was down 5.1% year-on-year, power was up 4.5%, transportation was

down 10.6%,

sewage and waste

disposal was down

27.7% and water supply

was up 15.4%. According to Carrick,

on the same basis, total public non-residential

construction was down 8.1% year-on-year while total private

non-residential construction was up 6.4% compared with February

2016. While such broad-based

infrastructure investment in concept is receiving widespread, bipartisan support and an optimistic reception from the steel industry, there continues to be some “squabbling” in Congress with the uncertainty of what exactly the Trump administration is proposing and how it will be paid for, Carrick notes. This comes as the American Society of Civil Engineers’ 2017 report card rated overall US infrastructure with a D+ grade, unchanged from its last report card in 2013, with roads getting a D and bridges and ports receiving grades of C+. The ASCE estimates that the United States needs to invest $2 trillion over the next 10 years – double what the Trump administration is proposing – just to stop its infrastructure from getting worse.

One of the biggest questions regarding the Trump infrastructure investment package, as has been the case with other recent federal infrastructure investment plans, is how it will be funded. Traditionally federal funding of infrastructure projects has been through the Highway Trust Fund, which, in turn, is funded by federal gasoline taxes. But with that tax not being increased since 1993 and is not likely to be increased anytime soon, and vehicles are becoming more fuel efficient – and in the case of electric vehicles not using any gasoline at all – the Highway Trust Fund has been teetering on the precipice of insolvency.

While the details are still somewhat sketchy, Hazelton says it appears as if the Trump administration plans to use about $137 billion of federal guarantees

Power-related construction was up 4% in 2016

Myra structural.indd 3 18/05/2017 11:40:26

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leveraged with private money, including tolls to pay for its infrastructure package, although that appears to be a very high multiplier and traditionally the United States hasn’t been all that successful in the past in encouraging private investment.

That is why there has been some talk of tax reform being tied to infrastructure, to give investors a better reason to invest, although that might be easier said than done given that the United States hasn’t successfully gotten a tax reform package approved in about 30 years. It was also originally hoped that money that would have been saved if they had been able to successfully repeal and replace Obamacare could have been used to help pay for the infrastructure package, but, at least to date, Congress hasn’t been able to pass new healthcare legislation. Because of this, Anton says there is fear that the proposed package, especially if it indeed has a $1 trillion price tag, could result in the federal deficit going through the roof if Congress continues to refuse to raise taxes.

Even once an infrastructure package

is passed – if it is passed – it will be a while before the steel industry will feel its benefit. AISC’s Cross says under normal circumstances there is a 6-12 month lag, but due to the package’s reliance on public private partnerships that lag could be as long as 18-36 months.

But the eventual impact could be quite significant, SMA’s Bell says – as much as 5%, or about 5 million short tons, per year for 10 years. Plummer agrees. “Even if the

package is watered down somewhat, it will result in much higher infrastructure construction demand.”

Meanwhile the building side of the construction market will continue to grow as well, Cross says, although it isn’t expected to reach peak levels anytime soon. But on the positive side, with continued urbanisation, a bigger proportion will be for the mid- and high-rise buildings that consume more steel. �

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