US steel industry demand surge from Inflation Reduction Act, CHIPS Act

The IRA and CHIPS Act are “positive” for the steel industry partially due to the $370 billion in funding given in the form of tax incentives, which will spur new projects that demand steel, Kevin Dempsey, the president and chief executive officer of American Iron and Steel Institute (AISI), said on August 11.

The IRA establishes “Make it in America” provisions for the use of American-made equipment for clean energy production. The law provides expanded clean energy tax credits for wind, solar, nuclear, clean hydrogen, clean fuels and carbon capture.

Similarly, Scott Paul, president of the Alliance for American Manufacturing, said that the combined force of the CHIPS Act, the IRA and the bipartisan infrastructure law will boost steel demand in the US.

“The infrastructure [bill] will certainly help with structural steel and steel that goes into highways and bridges. There’s a sizable investment there. For the market for some wind components and solar that fabricate steel for solar panels and solar farms, that’s going to be quite important, and from the CHIPS and Science Act and the building construction to the extent that the companies are sourcing their structural steel from the United States for construction, that’s going to help that segment of the market,” Paul said.

On top of increasing domestic steel demand, the IRA and CHIPS Act will also support the steel industry’s decarbonization drive, Phil Bell, president of the Steel Manufacturers Association, told Fastmarkets.

“You have two pieces of legislation that are not only going to make our environment better but are also going to increase the demand for steel. All of those solutions for decarbonization and having a greener environment, steel is the solution for the solution providers because steel will go into wind, solar, electric vehicles, renewable energy projects, hydrogen hubs, pipelines,” Bell said.

The AISI estimates that each $1 billion invested in infrastructure spending requires about 50,000 net tons of steel.

Even though the US steel industry is not currently operating at full capacity the sources said, there is enough capacity to meet the rise in steel demand expected to be generated from the policies without the need to look overseas for material, according to the sources.

“We’re nowhere near running at full capacity today, so there’s certainly more steel that can be produced today from existing facilities and then we have millions of tons of new capacity coming online over the next couple of years. There’s going to be plenty of steel production available in the US. We’re seeing a lot of new demand, but it definitely can be met by the domestic industry,” Dempsey said.

Mill capability utilization rate was 75.9% in the week ended on August 5, according to AISI’s latest report, down slightly from a capability utilization of 78% in the week ended August 5 last year.

“In general, US mills are operating on any given month at about 76-77% of capacity. So there’s certainly room for growth to meet that demand. That’s entirely possible without having to depend on imports to fill the gap,” Paul said.

“Domestic steelmakers can step up and fill the need here. I’m confident that… steel companies will be looking for demand signals to scale up growth in those as well,” Paul added.

The IRA promotes “Build American” clean energy supply chains, by incentivizing domestic production in clean energy technologies like solar, wind, carbon capture and clean hydrogen.

“When you look at where that money is going, it’s going in all aspects of the steel supply chain. There are new projects that are investing in DRI [direct-reduced iron]. There are new projects that are investing in hydrogen hubs, carbon capture, and even the use of nuclear energy to power steel plants,” Bell said.

“All indications are we’re seeing a real boom in development of new clean energy, in wind and solar, and we’re going to see more in nuclear as well, and that is being driven and will continue to be driven by the incentives and the Inflation Reduction Act,” Dempsey said.

He added: “The CHIPS and Science Act has money focused on a particular semiconductor industry, but that’s leading to this build out of new [fabrication facilities] that we think are going to be very steel intensive. We expect a lot of a lot of new demand coming from that as well. Probably not quite in the same order as the Inflation Reduction Act, but also positive.”

The CHIPS and Science Act – aimed at boosting domestic manufacturing – provides $52.7 billion for American semiconductor research, development and manufacturing, according to the White House.

The investments going into the production of clean energy in the steel supply chain come amid a larger push in the industry to lower greenhouse gas emissions in the steelmaking process.

“What the market is demanding is steel products with a lower greenhouse gas emissions density. We are seeing every steelmaker across the board in the US continuing to invest and make innovations to further reduce their carbon emissions profile. We’re going to see more and more lower emitting steel products coming online,” Dempsey said.

He noted strong demand among customers in the construction and automotive market, who want their entire supply chains to emit as low carbon as possible.

Dempsey also said that steelmakers are responding to the demand by producing low carbon-emitting products.

SSAB Americas’ zero-carbon emissions steel plate, SSAB Zero, uses recycled steel and renewable wind energy supplied by MidAmerican Energy in Muscatine, Iowa.Cleveland-Cliffs has also announced it will implement hydrogen throughout its footprint while it becomes increasingly economical after successfully conducting a hydrogen injection trial at its Middletown Works blast furnace (BF) in May.

Nucor entered into a power purchase agreement in August for 250 megawatts of renewable energy from Sebree Solar, a subsidiary of NextEra Energy Resources, for a solar project in Henderson County, Kentucky.

Nucor also signed with ExxonMobil in June for a carbon capture and storage (CCS) project at the steelmaker’s Louisiana DRI plant, which will capture, transport and store up to 800,000 metric tons per year of carbon dioxide from Nucor’s manufacturing site.

“This new plan demonstrates the expected long-term positive impact of the Inflation Reduction Act that is driving the transition to clean energy and job creation. When completed, the plan will produce wind towers to meet the growing demand for renewable energy in the Southwest region,” Antonio Carrillo, president and chief executive officer of Arcosa Wind Towers said in an event on August 9, where President Joe Biden toured the firm’s new manufacturing site in Belen, New Mexico.

Carrillo added that Arcosa Wind Towers and the North American wind tower industry were facing significant challenges and uncertainty this time last year.

“We have received over $1.1 billion in orders for wind towers. This is a great example of how policy has a direct impact on business,” Carrillo said.

“We decided we’re going to invest in America, and [Arcosa] is a great example. They’re now poised to be the leader in the wind industry. Not only does this move us away from fossil fuels to cleaner technologies like wind, but it means we’re going to make things and new technologies here in America. There’s no reason why we can’t do it,” President Biden said at the event.

Looking ahead, the steel industry will see further investments in the production of clean energy through wind turbines, solar panels and hydrogen hubs, which will, in turn, benefit the steel industry.

“We’ll continue to see more investment in the industry in a range of areas. There is demand for steel for wind [turbines], both onshore and offshore, there are a lot of players involved in that. They’ve got solar panels that have a lot of steel, especially in the structure to hold up the solar panels and the parts for the tracking system, the torque tubes that are steel, so that generates lots of additional demand and we’re supposed to continue to see investment in a lot of flat roll products coming over the next several years,” Dempsey said.

“You’re going to see more investments and improving new ways of making steel,” Bell said.

The Infrastructure Act provides $8 billion in funding for regional hub development, according to the Department of Energy, including projects for the production, processing, delivery, storage and end-use of hydrogen.

“You’re going to see the electric grid getting greener each year and with the growth of EAF [electric-arc furnace] steelmaking, you’re going to see more demands on that electric grid. You’re going to see us looking at using more different types of power sources,” Bell added.

“There’s about $18 billion of investment that is taking place between 2022 and 2025 to modernize, decarbonize and electrify the American steel industry, and it ranges in product categories from sheet to slab to plate to rail, to even electrical steel, which will be very important in the development of electric vehicles and also our power grid. The recent investment announcements and all of these projects are full steam ahead. There’s going to be plenty of capacity to meet that demand,” Bell said.

There will also be a larger domestic market share for US steel producers in solar and wind segments, Paul said.

“There is a residual impact for steel in all of that since there’s a lot of metal involved [in solar panels and wind turbines], so that will have a positive impact from now to the next four or five years [and beyond] as more of that manufacturing is scaled up in the United States,” Paul said.

He added: “There is a clear policy intent to try to grow specific types of manufacturing in the United States and to ensure that we have a lot of policy levers that are going to move us in that direction. That’s one clear takeaway from all of this, we’re going to see a lot of ribbon cuttings for factory openings over the next three or four years as a result of the last year.”

Navigate the complex steel markets with our reliable and market-reflective steel price data and transparent pricing methodology. Learn more.