Which commodities will US infrastructure boom lift?

The next cab off the rank for the Biden Administration is a giant infrastructure package. According to Morgan Stanley, Australia does not benefit much. MS estimates that only an additional 7.5mt of steel will be needed per annum. That’s mostly going to be covered by scrap with some small marginal lift in iron ore. The big winner is cement:

Odds of an infrastructure deal are up, the result underinvestment in infrastructure combined with the 2-4x economic multiplier of infrastructure investments and a light Blue Wave(Democrats winning control of both houses of Congress). We stop short of making an infrastructure deal our base case since hurdles remain between now and this summer, as our chief public policy strategist Michael Zezas cautions. Using scenario analysis, in our bull case, a deal similar to the Moving Forward Act (US$1.5 trillion over 10 years) would add almost US$100 billion to annual surface transportation, 60% more than the Fast Act (our base case). Michael sees a higher probability of something akin to the Moving Forward Act passing, which would drive a meaningful uptick in infrastructure spending. The Moving Forward Act targets fixing existing infrastructure before constructing new roads and bridges, with more immediate impact on local economies.

An infrastructure package could catapult building materials into a Super Cycle similar to the 1950s. We are 10 years into the current construction cycle, exiting a recession, and potentially facing a government-underwritten cycle of another 10 years. With the US cement industry at 90% capacity utilization and 30% import capacity utilization, upward pricing pressure would be material. We estimate that a 15-20% real price increase could double US cement EBITDA. Aggregates would also see material impact, but capacity is constrained, while pricing power is more local. Steel is less affected as a global industry.

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