01/13/2021

U.S. Senate Flip Puts $2 Trillion Infrastructure Stimulus in Play

President-elect, Joe Biden

Following the Georgia run-off elections last week, a Democrat-controlled US Senate could put a massive wave of fiscal stimulus back on the table. This includes higher amounts of direct stimulus payments to individuals, and President-Elect Joe Biden’s $2 trillion infrastructure and green energy plan.

The new stimulus prospects lit a fire under US chemicals stocks last week. Materials, energy and infrastructure stocks led the overall equity market with big gains.

Prior to the Georgia run-off election, the consensus had been that a divided government with Democrats controlling the presidency and House of Representatives but Republicans holding the Senate would result in gridlock. Essentially, there was little chance major elements of the “Biden Plan” would be implemented.

However, a flip of the two Georgia senate seats to Democrats will result in a 50-50 split between the two parties, with the Democrat vice president breaking any tie on Senate votes. This would put Democrats in the driver’s seat when it comes to economic policy and legislation.

First on the table would be a boost in “one-time” stimulus checks to $2,000 per person (depending on income limits) from the previous $600 already implemented earlier this month, which would further drive consumer spending.

And now it’s worth revisiting the Biden Plan which encompasses $2 trillion in investment stimulus, much tilted towards green initiatives.

This includes a $400 billion procurement investment to “Buy American” products, materials and services to support US manufacturing. Plus, another $300 billion in R&D and “breakthrough technologies” ranging from electric vehicle (EV) technology to lightweight materials (think plastics) to 5G and AI (artificial intelligence).

The incoming Biden administration claims this would be “the largest mobilization of public investments in procurement, infrastructure and R&D since World War II”.

Most relevant to the chemicals industry, a massive infrastructure bill is likely on its way. For infrastructure and energy, $2 trillion in “accelerated investment” is planned to be deployed during Biden’s first 4-year term.

This includes building and repairing roads and bridges, ports, airports, water systems, electric grids and broadband; investing in the automotive sector from parts to materials to EV charging stations; building and upgrading rail networks and working towards zero-emission public transportation; investing in green power (solar, wind); upgrading 4m buildings and “weatherizing” 2 million homes to make them more energy efficient; constructing 1.5 million sustainable housing units; and investing in clean energy technologies such as battery storage, emissions technology, green hydrogen and advanced nuclear.

Accelerating the shift towards electric mobility, the Biden Plan seeks to build 500,000 EV charging stations across the country. The US currently has less than 29,000 EV charging stations, according to the US Department of Energy.

Part of the $400 billion procurement program will be directed towards buying US-made, “clean vehicles” for federal, state, tribal, postal and local fleets.

The huge potential investments in automotive and construction - two critically important sectors for the US chemicals industry - could launch it towards a far more robust recovery.

There is about $12,000 of chemistry in each single-family housing start, and $3,152 of chemistry in each light vehicle, according to economists at the American Chemistry Council (ACC).

And for nonresidential construction spending - including maintenance and repair - direct purchases of chemicals comprise about 1.1% of the total spend, while plastics and rubber products comprise 2.8%, noted Martha Moore, senior director - policy analysis and economics at the ACC.

While these percentages seem small, when you’re talking about infrastructure spending in the trillions, which could comprise nonresidential construction spending in the hundreds of billions, the absolute chemistry component is substantial.

It’s not just a wide range of plastics and rubber that stand to benefit, but also coatings for everything from houses, buildings, bridges and road markings. Polyurethanes for building and appliance insulation, oriented strand board (OSB) and automotive seating, and epoxy resins for windmill blades and solar panels would also see a demand surge.

Moore and ACC chief economist Kevin Swift said a major US infrastructure stimulus package is likely.

US manufacturing has already been on a tear, with the latest December reading of the US ISM Manufacturing Purchasing Managers’ Index (PMI) hitting 60.7, its highest level since August 2018 and marking the eighth consecutive month of expansion (over 50).

Along with the optimism on more stimulus, there will certainly be concerns about the impact of potentially higher corporate taxes and increased regulation on the sector from a Biden administration.

The Biden Plan says the costs of the stimulus will be paid for by “reversing some of Trump’s tax cuts for corporations” as well as raising taxes on wealthier individuals.