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April 16, 2021, 12:27 p.m. EDT

Lumber and steel markets look to Biden’s infrastructure plan for their next big boost

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Myra P. Saefong

There’s little doubt that demand for lumber, steel, and other commodities will get a boost from President Joe Biden’s $2.3 trillion proposed infrastructure package.

Prices for some building materials, however, have already booked phenomenal gains in the first three months of the year, potentially setting limits on an extended rally.

Biden’s  infrastructure plan  includes repairs to roads and bridges, and investments and improvements in airports and transit systems over an eight-year period.

Infrastructure spending will “carry over into lumber,” says Steve Loebner, director of risk management at lumber, plywood, and building-materials wholesaler and broker Sherwood Lumber. “Overall demand for forest products will be bolstered, and that will have a continued bullish effect on prices.”

Lumber prices /zigman2/quotes/217071097/delayed LBK21 +0.62% /zigman2/quotes/210109673/delayed LB00 +4.08% are up around 44% this year, at $1,260.70 per 1,000 board feet as of April 15, after more than doubling in price in 2020. Also this year, steel futures /zigman2/quotes/210067983/delayed HRNK21 +0.66% have jumped 41% and iron ore /zigman2/quotes/210360936/delayed TIOK21 +0.66% trades 10% higher. Copper /zigman2/quotes/210056589/delayed HGK21 +1.84% /zigman2/quotes/210054311/delayed HG00 +0.07% has climbed 20%.

Read: Home builders are growing more confident about the housing market —despite the rising cost of construction materials

Among the reasons behind lumber’s rally is “ surging demand in the face of Covid-related production curtailments last year, and an industry that pared its inventories to bare-bones minimum levels,” says Loebner. Production has increased “tremendously” since then, but “not nearly enough to meet surging demand and a huge backlog of underbought projects that are now coming online.”

Forest-products company Weyerhaeuser Co.  /zigman2/quotes/200438029/composite WY +1.71% has benefited from the high lumber prices, with shares up about 15% this year.

The market saw a “virtual end” to Canadian lumber exports to the U.S. after former President Donald Trump  imposed a 20% tariff , says Dennis Gartman, chairman of the University of Akron’s endowment investment committee, but the tariff was reduced to 9% last year.

There’s also the “home-building and fix-it-up phenomenon taking place that is the final driving force” for lumber, he says. Lumber has added more than $24,000 to  the price of an average new home , according to the National Association of Home Builders. That may “eventually put an end to the lumber rally,” says Gartman.

Read: New-home construction rebounds as America faces dire housing shortage

Still, against a backdrop of infrastructure spending, iron ore and steel prices are likely to continue to advance, adds Gartman, who is also the retired editor of The Gartman Letter. He also points out that iron-ore prices have nearly doubled from a year ago and have spiked recently. The price trend is up, but he urges caution when buying anything after a spike.

The most-active futures contract for 62% iron-ore fines delivered to China settled at $171.99 per metric ton on April 15 on the CME. U.S. Midwest domestic hot-rolled coil steel futures were at $1,359 per short ton. Copper trades well above $4 a pound.

Stuart Burns, editor at large for metals-analysis provider MetalMiner, says Biden’s infrastructure plan “is not [an] all-metals-consuming investment,” though spending on bridges and roads, among other things, are “all good metals-boosting initiatives.”

Burns estimates the plan will add about $621 billion in spending for transportation infrastructure, with the metals content only a fraction of that — “not nothing, but not likely to turbo charge the metals economy.”

In the short term, the steel market is very tight, and improved sentiment alone could push prices higher, he says. President Biden’s $1.9 trillion economic stimulus package passed in March, meanwhile, may already be “adding fuel to the recovery and helping consumer demand,” says Burns.

While the $2 trillion-plus proposed infrastructure package has “yet to be passed and the details to be agreed,” it could “help steel and copper demand as the economy comes off its current pandemic and stimulus-supported rebound running up to the middle of the decade,” Burns says.

/zigman2/quotes/217071097/delayed
US : U.S.: CME
$ 1,645.00
+10.10 +0.62%
Volume: 69.00
May 6, 2021 2:58p
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/zigman2/quotes/210109673/delayed
US : U.S.: CME
$ 1,607.50
+63.00 +4.08%
Volume: 305.00
May 6, 2021 3:05p
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/zigman2/quotes/210067983/delayed
US : U.S.: Nymex
$ 1,518.00
+10.00 +0.66%
Volume: 33.00
May 6, 2021 3:27p
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/zigman2/quotes/210360936/delayed
US : U.S.: Nymex
$ 198.99
+1.31 +0.66%
Volume: 0.00
May 6, 2021 7:25p
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/zigman2/quotes/210056589/delayed
US : U.S.: Nymex
$ 4.62
+0.08 +1.84%
Volume: 545.00
May 6, 2021 4:41p
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/zigman2/quotes/210054311/delayed
US : U.S.: Nymex
$ 4.61
+0.0030 +0.07%
Volume: 601.00
May 6, 2021 7:52p
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/zigman2/quotes/200438029/composite
US : U.S.: NYSE
$ 39.22
+0.66 +1.71%
Volume: 5.74M
May 6, 2021 4:00p
P/E Ratio
22.13
Dividend Yield
1.73%
Market Cap
$28.89 billion
Rev. per Employee
$803,671
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Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the...

Myra P. Saefong is on the markets team in San Francisco. She has covered the commodities sector for MarketWatch for more than 10 years. She has spent the bulk of her years at the company writing the daily Futures Movers and Metals Stocks columns and has been writing the weekly Commodities Corner column since 2005. Myra has been with MarketWatch since 1998 and holds a master’s degree in English literature.

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