Kemmsies: Expect Huge Demand for Steel in Next Five Years

One of the biggest long-term drivers for steel consumption will be infrastructure, which hopefully finds funding under the new administration, Kemmsies said. He noted that the public sector likes to keep infrastructure in-house in order to boost revenue, so more local governments will be turning to public/private partnerships, more investment by domestic and foreign wealth, as well as federal government support.

As the U.S. recovers from the pandemic and reaches herd immunity, GDP and employment are expected to rise. Economists are expecting GDP to reach 4.5 percent or higher for 2021. “When employment returns to the 150 million level, we can say the economy has recovered,” said Kemmsies. Normally 70 percent of household spending is on services, which have borne the brunt of pandemic closures and restrictions, greatly reducing employment in the sector. As the sector returns, so will demand for construction in the leisure sector, such as hotels and restaurants.

Kemmsies noted that natural disasters and catastrophes drive new technology and adoption of innovations. Electricity was introduced in the 1920s and was fully adopted by the 1930s; horse and buggy disappeared to be replaced by autos. The 2020 pandemic has prompted technological changes as Americans turn to online commerce, schooling and business. The introduction of the 5G network will bring the internet to rural and poor communities and substantially increase bandwidth to accommodate the rise in users. The transition to 5G begins with software and then equipment. It will take 2-5 years until we see the full impact, but the capacity difference will be huge for business, he said.

Steel will continue to see benefits from housing construction. The pandemic-induced work-from-home trend is likely to continue spurring demand for new homes that include office space. Pent-up demand coupled with low interest rates has driven interest in home ownership and, until inflationary pressures rise, the federal reserve will not need to raise interest rates. This could be a 5-7 year cycle, and housing sales will probably hit the two-million mark before peaking and beginning to slow, said Kemmsies.

Automobile purchases are currently around the 16 million unit rate and will approach 17 million as fleets are replenished. The shift to electric cars may also benefit the steel industry. Accelerating sales of electric vehicles indicate solid adoption of the technology by consumers.

E-commerce requires more distribution centers. Pre-pandemic, e-commerce held 8-11 percent of the market, jumped to nearly 20 percent during the crisis and is expected to reach 30-35 percent of the market by the end of the decade. It is estimated that every billion dollars of online sales requires industrial space of one to two million square feet. The distribution centers require significant steel for construction as well as for the automated equipment contained within, thanks to the 5G network.

“Near term, growth will be driven by the path to herd immunity, medium term by residential real estate and maybe cars, and for the long term it is infrastructure and the impact of 5G and broader penetration of U.S. households and businesses by the internet,” concluded Kemmsies.