Originally, Trump said that he intends to spend more than $500 billion—twice what Hillary Clinton was looking to allocate—on the infrastructure sector. Notably, Trump also mentioned infrastructure spending in his acceptance speech. During Trump’s presidency, we could see a see higher allocation to infrastructure spending. He claimed to be more comfortable with a higher budget deficit. Investments in bridges, highways, and airports would boost the demand for metals like steel and aluminum (DBC).
Considering Trump’s campaign claims and emphasis on boosting US manufacturing, we can assume that the steel used in any new public infrastructure projects would be made in the US. Companies like U.S. Steel (X), AK Steel (AKS), ArcelorMittal (MT), and Nucor (NUE) should benefit from Trump’s higher infrastructure outlay.
Would China follow?
The real estate and infrastructure sector are the biggest steel consumers in China. They account for more than half of the country’s steel demand. Notably, the Chinese government enhanced its infrastructure investment this year in a bid to support its sagging economy. If Trump gets tough on Chinese imports, China could increase its infrastructure investment to support the country’s economic activity. Higher infrastructure investment in China would support steel demand.
If China continues to act against its excess steel capacity and supports its steel demand with infrastructure investments, we could see balance return to global steel markets much sooner that many analysts expected. It would be a win-win situation for the global steel industry.
Having said that, the above argument might turn out to be wishful thinking if we see a trade war. We’ll discuss this in more detail in the next part.