By Andrey Dashkov, analyst, Casey Research
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At the end of 2021, President Biden decided which companies and sectors would be the biggest investment winners of this year.
He did it by signing the bipartisan Infrastructure Investment and Jobs Act, where $550 billion of federal investments will be spent over fiscal years 2022 through 2026.
This money will go into bridges, roads, public transit, water and energy systems, as well as broadband internet infrastructure.
And even though the legislation was passed more than a year ago, its effects have just begun to trickle down to the real economy.
So today, I’ll tell you about two investments that are set to soar from the $550 billion spending plan.
Copper to Play a Key Role in This Megatrend
When it comes to infrastructure, copper is one of the most widely used commodities.
It’s necessary for building construction, power transmission, industrial machinery, and transportation vehicles.
What’s more, it fits into two categories within the Infrastructure Act: energy systems and internet infrastructure.
On the energy side, the bill aims to expand access to clean energy for households and businesses. And producing clean energy from sources such as wind and solar requires a lot of copper. For instance, wires made of copper are needed to transmit electricity.
Just in North America’s solar industry alone, the demand for copper power cables is projected to increase tenfold between 2021 and 2035, to 1.1 million metric tons.
Aside from energy, the Act also aims to provide internet access to communities that don’t currently have broadband access. And copper lines are a cheap way to achieve that. As a result, the global copper wire and cable demand (which includes both transmission and broadband) could explode from $175 billion in 2022 to $267 billion by 2030.
In response to increased copper demand, Wall Street analysts are revising their price targets for the metal.
Goldman Sachs has increased its 12-month forecast to $11,000 per tonne (25% higher than the current price of $8,766/t), while Bank of America’s analysts revised their target to $12,000/t (37% above the current price).
S&P Global estimates that copper demand could double to 50 million tonnes by 2035 just due to electrification and decarbonization.
Right now, the U.S. uses about 1.8 million tonnes of copper per year. But new estimates point to an additional demand of 500,000 tonnes over the next five years.
What’s more, copper mining companies based in the U.S. and its allied countries, such as Canada, could be the ones benefitting the most.
Steel Producers Are Facing Overwhelming Demand
In addition to copper, the Infrastructure Act is also boosting the steel industry.
Steel is used in wind and solar installations. A two-megawatt wind turbine contains about 260 tons of steel. One megawatt of solar power requires about 40 tons.
Ryerson, a metals supplier, says the bill requires 45 million tons of steel over the next five years for infrastructure projects and an additional 25 million tons to manufacture the equipment needed for construction.
But in 2022 alone, steel price rose by 10%. Analysts expect shortages of steel this year both in the U.S. and in the European Union.
In the past, when shortages occurred in the U.S., steel companies based in Canada, Brazil, and Mexico picked up the slack. So smelters based in these countries could also get a boost from the bill.
Finally, the bill includes $65 billion for upgrading the electric grid, boosting the producers of “electrical steel,” or the steel used to make grid transformers – vital devices for the power grid.
Most of this steel is imported from overseas, as there is only one company producing electrical steel in the U.S.: Cleveland-Cliffs Inc. It churns out 250,000 tons of electrical steel per year, and it’s operating at capacity.
This means that electrical steel companies based in “friendly” nations should benefit from the U.S. government’s budget to develop the country’s power grid.
What This Means for Your Money
Overall, commodities will play a key role in the long-term, multibillion-dollar infrastructure push launched by the Biden administration.
Copper and steel are critical for the success of this massive program. To get exposure to their prices, consider the United States Copper Index Fund (CPER), which tracks copper futures.
At the same time, VanEck Steel ETF (SLX) is an exchange-traded fund (ETF) based on a diversified portfolio of steel producers. Cleveland-Cliffs, which I mentioned above, makes up about 5% of the ETF’s portfolio.
Good investing,
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Andrey Dashkov
Analyst, Casey Research
P.S. If you’re interested in learning more about how government policy like the Infrastructure Act bolsters certain sectors, make sure you check out Casey Research colleague Nomi Prins’ presentation that aired last week.
In it, she reveals the winners and losers of a massive $46 trillion shift coming out of Washington – including the name of a winner and a loser.
So if you don’t want to be stuck with the wrong companies this year, tune into the replay of Nomi’s event here before it’s taken down.