Chatting with Norsk Hydro VP of Finance and Strategy Mike Stier about the infrastructure bill’s impact on aluminum

U.S. President Joe Biden on Monday signed the $1.2 trillion Infrastructure Investment and Jobs Act into law.
The bill includes funding to upgrade the country’s transportation infrastructure, electric grid and more. As such, the projects will certainly need metals like steel, copper and aluminum, among others.

Infrastructure bill’s impact on aluminum demand

Infrastructure investment has traditionally been viewed in the context of roads, bridges, airports, etc. However, the infrastructure bill has a forward-looking environmental component to tackle climate change, Stier noted.
Among those improvements include supporting the electrification of cars and supporting infrastructure and upgrading power grids. All of those projects will impact aluminium demand. From its conductive properties to its use in vehicle lightweighting to demand for products like road signs, walkways, or masts and towers, aluminum is likely to get a demand boost as a result of the bill.

Demand time frame

So, how quickly will the bill’s provisions and projects start to impact demand for metals like aluminum?

Financial stimulus measures can cycle in an economy over a 12-24 month period. However, Stier said Hydro sees this infrastructure program rolling out over a decade.
Infrastructure for the infrastructure will need to be in place to make the bill’s projects happen. As a result, there will be an incremental increase in demand for trucks, trailers, scaffolding and multiple other in-directs, Stier added. Demand will also increase for products directly consumed by the beneficiaries of such investment, including automotive sheet and extrusions, aluminium cabling for power transmission, and the aforementioned masts, towers and other aluminum structures.

Aluminum price impact

Taking aluminum extrusions as an example consumption reached some 6 billion lbs in 2018 and fell due to the pandemic. However, it is projected to rise back above that level through 2023-2025.
Aluminum growth — pandemic excepted — has been positive for decades, Stier noted, adding he sees the infrastructure program as being supportive of consumption through not just the near term but through the second half of the decade.
The demand side of the equation will be supported, he added, but there are uncertainties over timing and priorities for investment.

Could tight market lead to US increasing imports?

The North American market needs aluminum imports.
While imports may not be sucked in to meet specific infrastructure applications, Buy America where applied will deter that, to the extent that domestic supply is taken to fulfill the program.
Imports will continue to play a role in meeting that displaced demand. The next 12-18 months will likely continue to be a roller coaster of supply disruption. That would be supportive of the current status quo regarding prices and lead times. While inventory levels are improving, the Midwest premium is likely to remain elevated for some time to come.

Looking ahead

Hydro has expansion plans in place, Stier said. Furthermore, the firm can probably accelerate those plans faster than the infrastructure investments can practically be brought to reality. As such, the company is not so much adding new expansion plans because of the infrastructure program. However, it may well bring the timing forward if market demand looks like it is justified.
Finally, Stier added that the environmental focus of the infrastructure plan aligns very closely with Hydro’s own ethos on sustainability, of promoting recycling and reducing the total carbon content of its products by continual improvement across its value chain from smelting to post-consumer recovery for recycling.
The challenge the firm sees is in maximizing the opportunities from the outset, in ensuring scrap arising from infrastructure replacement or rebuilding is captured and recycled as effectively as it can be. Failure to do so would be a wasted opportunity for a plan that has meeting the challenges of climate change as a core objective, he added.
Are you under pressure to generate aluminum cost savings? Make sure you are following these five best practices.