Investing in a material world

Infrastructure spending might be a game changer for materials companies.

  • Jody Simes, sector portfolio manager
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Key takeaways

  • US legislation signed into law in November 2021 provides significant funding for infrastructure projects.
  • Work on roads, bridges, and buildings will spur demand for construction materials such as aggregates and steel.
  • Funding for electric vehicle (EV) charging stations and consumer EV incentives should help drive demand for materials like copper.

The Infrastructure Investment and Jobs Act (IIJA) signed into law in mid-November 2021 provides $1.2 trillion in government spending, which should be a boon for the suppliers of key commodity inputs, such as copper and steel.

What's in the bill and who might benefit?

The IIJA calls for $550 billion in new public works spending above what was already expected in future federal investments. Its specific provisions include $110 billion for roads, bridges, and other major projects, $66 billion for passenger and freight rail, $65 billion for broadband, and $15 billion for EVs.

Miners in 3 groups within the materials sector—copper, aggregates, and steel—should benefit primarily, with a number of other materials providers receiving spillover benefits.

In regards to EV spending, there's a lot to be excited about for materials stocks. In addition to what's been allocated for charging infrastructure, the bill includes $2.5 billion for zero-emission buses and $2.5 billion for low-emission buses.1 When you combine these plans with improved product features, such as larger range per charge and better charging availability, that could contribute to continued momentum behind sales of EVs.

In turn, this would increase demand for copper, as the typical EV contains 4 times as much copper as a vehicle running on an internal combustion engine. Increased demand for EV batteries could also provide a long-term benefit for miners of the lithium, cobalt, and nickel needed to make those batteries.

Another segment of the materials sector that stands to benefit are producers of aggregates, such as crushed stone, gravel, and sand. Aggregates are one of the most basic construction materials: They are a primary ingredient for roads, bridges, and buildings. Aggregates comprise more than 90% of asphalt pavement and up to 80% of a concrete mix.2 IIJA's support for highways will boost demand for aggregates and should directly benefit some US companies that supply construction materials.

Road and bridge construction is also steel-intensive, given the widespread use of rebars, the steel bars typically used to reinforce concrete. Consequently, steel producers may have their balance sheets buttressed by IIJA.

More to come?

While additional government proposals may face steep political challenges in the near term, potential infrastructure spending in future bills could augment these trends. Regardless, there is more momentum behind materials than there has been in a long time.

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