Topalian: Steel Has the Capacity to Go Big with Biden on Infrastructure

“We are still driving on roads and bridges designed and built during the Eisenhower administration,” Topalian said. “President-elect Biden has said he plans to build back better, and that’s exactly what our nation needs to do.”

He made the comments after the ASCE released a report titled “Failure To Act” detailing how America’s lack of investment – not only in roads and bridges but also in water transmission and rural broadband – threatens the country’s long-term global competitiveness.

“America is physically crumbling. And it’s time to do something about it – something big, something bold,” Topalian said, noting that the steel industry was hurt last year when waterways in Illinois were closed for “long overdue” repairs to locks and dams. 

Where’s the Steel?

Steel Market Update asked whether there was enough spare capacity in the U.S. to meet demand stemming from a potential $1 trillion infrastructure package – especially given that hot-rolled coil prices now stand at their highest point ever as a result of extremely limited spot market availability.

“At the end of the day, is there enough supply in the United States? The short answer is, ‘yes,’” Topalian said.

That’s because approximately 20 million tons per year of integrated steelmaking capacity was taken offline in the second quarter when the outbreak of the Covid-19 pandemic led to waves of shutdowns and layoffs. Roughly 10 million tons of that capacity has since been restarted, but another 10 million tons remains idle, he said.

“As we move forward, if we see something very substantial passed … you’ll see steelmakers also pick up and restart certain blast furnaces that have been taken offline,” Topalian said.

On the electric-arc furnace (EAF) side of the industry, companies have been investing heavily – to the tune of $4 billion in recent years in the case of Nucor – in new capacity, he said, highlighting a $1.35-billion plate mill being built in Brandenburg, Ky.

The key is that any infrastructure bill has language ensuring that steel procured for it is made, melted and poured in the United States. “It will be interesting to see how this plays out and what the final bill will look like,” Topalian said. But he also noted that Biden appears to be “very committed” to acting on the issue.

Steel Market Update also asked whether it might be necessary to relax Section 232 tariffs to ensure that consumers across the spectrum – not just those involved in potential infrastructure work – would have enough steel.

“Should we relax Section 232? Well, at the end of the day, 232 is something – at least from our perspective – we believed would go away at some point. Not sure when that is. But it served a vital purpose,” Topalian said.

It is important that “fair trade” be enforced by the Biden administration. Still, it would be reasonable to see 15-20% of steel used in the U.S. coming from outside the country, he said.

And Nucor is confident that a Biden administration – like the Trump and Obama administrations – would be an ally in a fair-trade fight. “Many of the (trade) issues that we saw favorable outcomes for were…when President Obama was in office,” Topalian noted.

The U.S. steel industry was largely successful, for example, in anti-dumping and countervailing duty petitions against imported hot-rolled, cold-rolled and coated flat-rolled steel as well as against foreign plate under Obama’s watch. And among Obama’s final actions in office were greenlighting duty-circumvention cases against Chinese steel cold-rolled and coated in Vietnam. Those cases served as a template for duty-circumvention cases subsequently filed by the Trump administration against imports from other countries.

Where’s the Money

The Biden administration will provide more than lip service to infrastructure, agreed Representative Earl Blumenauer, an Oregon Democrat who was also on the ASCE call.

“One of our biggest problems in the last four years is that we have had the active opposition of a president who sometimes says he believes in infrastructure but when the chips are down is not there with a program, a plan or any follow through,” said Blumenauer, who is also a member of the powerful House Ways and Means Committee.

Blumenauer lamented “incoherent leadership” from Trump’s Transportation Department. Better is expected from Pete Buttigieg, who is likely to be Biden’s transportation secretary, especially given that the former South Bend, Ind., mayor had “one of the best platforms” among Democratic presidential candidates on infrastructure issues, he said.

The House, thanks to the work of Representative Peter DeFazio, another Oregon Democrat, has already passed infrastructure legislation that could serve as a framework for the Senate and the Biden administration to build on, Blumenauer said.

One big question is how to finance an infrastructure bill, because a gas tax is not a sustainable solution as the U.S. sees increased use of electric vehicles. It’s also not good politics because “people hate the gas tax, and we ought to get rid of it.” Historically low interest rates could help “supercharge” alternative means of funding infrastructure, including via “Build America Bonds,” he said.

The Biden administration might rely less on tariffs and more on carbon policy to deter imports. Nucor, for example, is a “low-carbon alternative,” and the U.S. should “make sure other countries aren’t exporting their carbon pollution to us to the detriment of people who are playing by the trade rules and trying to be environmentally sensitive,” Blumenauer said.

Tariffs are not ideal because they are paid not by foreign governments but instead by American businesses and consumers. “I think a Biden administration would be a constructive partner with Congress and industry to try and do something that is targeted and fair rather than heavy handed and just massively using tariffs,” he said. 

Ending the Politics of Division

U.S. GDP will suffer to the tune of $10.3 trillion – including $2.4 trillion in lost exports – by 2039 if money is not spent on infrastructure now, ASCE Executive Director Tom Smith said on the call.

Another way to look at it: Crumbling infrastructure costs American families approximately $3,300 per year because of things like traffic jams, potholes, water main breaks and power outages. And similar factors hurt U.S. manufacturers, which have historically offset higher wages with efficient infrastructure that reduces their cost of moving goods, he said.

“When a lock on the inland waterway system breaks down, barges loaded with raw materials are stuck until a fix can be made. Meanwhile, when a manufacturing plant suffers an electrical outage, machines are costly to restart and productivity plummets as workers stand idly by waiting for the lights to turn back on,” Smith said.

Republicans and Democrats might not agree on much. But infrastructure has historically been an issue where the two parties have been able to find common ground – something that might be necessary now more than ever given the country’s stark political divisions, speakers on the call said.

“We do think that the iron is hot right now… There is a lot of opportunity,” Smith said. “What we really need is leadership at the national level. And it starts with the president and the administration and making sure this is a priority for the country.”

Leon Topalian will be one of our featured speakers at this year’s Tampa Steel Conference which will be held virtually on February 2, 2021. Mr. Topalian will speak with SMU CEO John Packard one-on-one and answer questions from our attendees during the conference. You can learn more about the agenda, speakers, costs and how to register by clicking here.

Michael Cowden, michael@steelmarketupdate.com