China’s Construction Crisis Weighs On Industrial Metals

By Ag Metal Miner

  • The Monthly Metal Miner Index for construction has dropped once again.
  • Construction, and by extension, industrial metals have taken a beating due to China’s widely criticized “zero-Covid” policy.
  • Industrial metals could begin to rebound as the United States prepares to roll out its $2.5 trillion infrastructure package.

This month, the Construction MMI (Monthly MetalMiner Index) dropped yet again. However, it declined slightly less than those seen in previous months. Altogether, the index is down 4.60%. Industrial metal, in general, continues to struggle due to China’s COVID lockdowns and supply chain issues.

Industrial Metal and the US’ 2022 Construction Roller Coaster Ride

The US construction industry has had quite a year so far. In fact, a recent report attempted to demonstrate some of the trends, facts, and figures that affected the industry over the course of the pandemic. In general, the trends are up and down. However, despite a slow start to the year, the sector still anticipates 4.5% growth by the end of 2022.

Of course, there’s no shortage of roadblocks standing in the way. Increasing production costs over the past six months, limited industrial metal supplies, and smelter shut-downs in places like China are just some of the obstacles with which the US construction industry continues to grapple. However, this does not mean the projected growth numbers are out of reach.

In fact, in July alone, the US construction industry recently added nearly 32,000 jobs. Meanwhile, cities like New York City, Los Angeles, and San Francisco continue to expand at a rapid pace. That said, materials and real estate costs remain high. And even though US construction job openings are numerous, they aren’t necessarily filling up quickly. Indeed, a recent article noted that the number of unclaimed jobs could soon hit a breaking point. Last year, some 40% of these construction industry jobs remained unclaimed.

The US Construction Industry is Hanging its Hat on the ILJA

The passage of the landmark Infrastructure Investment and Jobs Act represents a $1 trillion revenue opportunity for US Construction and engineering firms. In fact, data on global construction initiatives recently predicted that infrastructure will replace residential as the primary focus of US contractors.

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For decades, Infrastructure has taken a back seat due to being far less lucrative than private contracts. Now, thanks to the ILJA, companies are lining up for contracts with the highest numbers since the 1950s. Their timing is perfect. According to the American Society of Civil Engineers, the infrastructure investment gap is now $2.5 trillion (spread out over a 10-year period). Specifically,  this number estimates the amount of investment needed to maintain American infrastructure in a good state of repair.

Poorly-maintained infrastructure represents a huge threat to everyone in the country and risks costing households thousands of dollars a year. And with the worst of the pandemic (hopefully) behind us, now seems like the perfect time to push for modernization. Moreover, with climate change already rearing its ugly head across the country, many feel we are long overdue for more efficient, less polluting infrastructure initiatives.

Chinese Construction Continues to Limp Along

We’ve talked before about China’s ongoing construction woes. Still, it’s hard to overestimate its vitality to China’s economy. Recently, it was revealed that Chinese steel demand was closing in on all-time lows. In fact, steelmakers were forced to raise their output cuts due to lack of demand actually pushing their profits into the negative.

According to S&P Global, excavator sales also declined for four months straight, a huge indicator of construction sector weakness. Debt also plagues the industry at large, and the government hasn’t been much help. Back in late July, Beijing announced a real estate fund to help ease developers’ debt-related woes. However, despite the $44 billion cash injection, the sector continues to barely limp forward.

It’s a “tale of two infrastructure policies,” and it will be interesting to see how both the US and Chinese approaches pan out. China’s construction industry grew 2% last year and 4% in 2020. At the moment, it’s predicted that the additional spending may push the sector up to 3% by the end of the year. Ultimately, only time will tell how the sector’s internal struggles will affect the rest of the world.

By AG Metal Miner


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