INSIGHT: US $2tr infrastructure plan would light a fire under chemicals demand

Author: Joseph Chang


NEW YORK (ICIS)--The proposed $2tr US infrastructure plan would massively boost spending to build and upgrade the country’s transportation, housing, automotive and communications systems, giving a further boost to chemicals and polymers as critical building blocks.

Branded as The American Jobs Plan, the infrastructure bill includes $621bn for transportation, including roads, bridges, public transit, airports, ports and electric vehicle (EV) infrastructure; over $300bn in drinking water systems, electric grids and broadband access; and over $300bn in affordable housing, schools, hospitals and office buildings.

This “hard infrastructure” portion amounts to over $1.2tr, with other funds targeting research and development and job training. But it depends on whether housing and buildings, schools and hospitals are included. Regardless, the construction portion of the plan is massive (see full breakdown in table at end).

The US chemical industry “will be at the center of this effort since it will provide advanced materials and techniques to make many of these upgrades possible”, said the American Chemistry Council (ACC) in a statement.

"The scale of proposed US infrastructure packages is larger than we expected, and we continue to expect a post-vaccine demand surge magnified by the strongest restocking cycle in the post-War era," said Jefferies analyst Laurence Alexander in a 5 April research note.

"Growth expectations for 2022-2023 will likely firm up this
summer, which should provide support for upstream commodity chemicals," he added.

There is no question an investment in US infrastructure on a magnitude not seen since World War II would require massive volumes of chemicals.

However, the plan which includes corporate tax hikes, is likely to involve months of negotiations in Congress.

If the proposed infrastructure bill passes roughly as planned, it would set the US on track for average 2021-2022 GDP growth of over 6.2% while 2023 could see still robust GDP growth of over 4%, said Alexander.

Highways, vehicles and water pipes
Specifically on transportation infrastructure, the plan would modernise 20,000 miles of highways, roads and streets, fix the 10 most economically important bridges in need of repair, repair 10,000 smaller bridges, replace thousands of buses and rail cars, renew airports and expand transit and rail lines.

Highway and road construction would boost demand for concrete and asphalt additives including polyethylene glycol (PEG) for curing agents, and other chemicals such as epoxy resins and acrylics for sealants. Methyl methacrylate (MMA) and titanium dioxide (TiO2) would be used for road markings. Repairing bridges not only requires steel, but industrial coatings as well.

On the automotive side, $174bn is earmarked for investment in the EV market, to “enable automakers to spur domestic supply chains from raw materials to parts, retool factories to compete globally, and support American workers to make batteries and EVs”. This will include tax incentives to buy US-made EVs.

For the acceleration of the EV transition, the plan includes grants and incentives to build a network of 500,000 EV chargers by 2030, replace 50,000 diesel transit vehicles and electrify at least 20% of the yellow school bus fleet.

Public transportation will also get a massive upgrade, including a renewal of the bus fleet.

An investment of $85bn would be made to modernise existing transit and expand systems to meet rider demand. The US Department of Transportation estimates a repair backlog of over $105m, representing 24,000 buses, 5,000 rail cars, 200 stations and thousands of miles of track, signals and power systems in need of replacement, according to the plan.

Major polymers used in automotive include nylon, polyurethanes (PU), polypropylene (PP), ABS/SAN and polycarbonate (PC). Most significantly, automotive accounts for 32% of nylon, 20% of PU, 15% of PC, 12% of ABS/SAN and 8% of PP demand on a global basis, according to ICIS Analytics.

Source: ICIS Analytics

On water infrastructure, the plan includes spending $45bn to replace 100% of lead pipes in drinking water systems to eliminate lead exposure in homes and schools. Typical lead pipe replacements include copper, galvanised steel and polyvinyl chloride (PVC).

The lead pipe replacement is part of a $111bn investment to modernise water systems which includes remediation of PFAS (per- and polyfluoroalkyl substances) contamination in drinking water.

Residential and commercial buildings renewal
The construction and modernising of homes and buildings is a big part of the infrastructure plan which calls for $213bn to build, preserve and retrofit over 2m affordable housing units, $100bn to upgrade and build new schools, and tens of billions more for community college buildings, child care facilities and veterans hospitals.

The new construction and retrofits will involve making the buildings more energy efficient.

This will ramp up demand for key construction polymers such as PVC, PU, expandable polystyrene (EPS) and polymethyl methacrylate (PMMA). Most significantly, construction applications account for 68% of PVC, 51% of EPS, 30% of PU, and 28% of PMMA on a global basis, according to ICIS Analytics.

Source: ICIS Analytics

Broadband access
Access to high-speed broadband internet and mobile connections will be widely expanded with a $100bn investment, including to the more than 35% rural Americans who lack access to this at minimally acceptable speeds, according to the plan.

For chemicals, this will boost demand for wire and cable compounds - those used for jacketing the wires and fiber optic lines that enable high-speed broadband connections.

Dow produces a range of telecom cable compounds made from different grades of polyethylene (PE) to help deliver broadband access. These compounds cover and protect copper and fibre optic cables.

Wire and cable accounts for less than 2% each of high density PE (HDPE) and linear low density PE (LLDPE) use in North America, but over 5% of low density PE (LDPE), according to ICIS Analytics.

Clean energy demonstration projects
Large-scale solar and wind projects are not specifically mentioned in the plan, other than wind in demonstration projects.

An overall $35bn investment to facilitate breakthroughs in clean energy includes $15bn to build demonstration projects for climate R&D in energy storage carbon capture and storage (CCS), hydrogen, advanced nuclear, rare earth element separations, floating offshore wind, biofuels/bioproducts, quantum computing and EVs.

Meanwhile, $100bn would be allocated to strengthening power infrastructure, including upgrading the electric grid and extending tax credits for clean energy generation and storage.

The plan also calls for a $46bn investment in federal buying power to specifically jump-start clean energy manufacturing via procurement. This would enable the local manufacturing of EVs, ports, pumps, clean materials and advanced nuclear reactors and fuel needed to achieve net zero emissions by 2050.

…And changes to tax code
Lastly, the plan includes multiple changes to the tax code, including raising the corporate tax rate to 28% from the current 21%, closing corporate global minimum tax loopholes, implementing tax changes to discourage offshoring and eliminating tax breaks for the fossil fuels industry.

This part is the most controversial for business, with a number of trade associations expressing concerns.

“We do have grave concerns with tax provisions in the proposed plan that would make America less competitive, stifle innovation and interfere with our ability to invest, innovate, create jobs, and provide technologies that will be critical to infrastructure improvement, clean energy and climate solutions,” said ACC CEO Chris Jahn.

“Raising taxes on manufacturers would fundamentally undermine our ability to lead this recovery. Our industry fought for decades to achieve a tax system that includes competitive rates and modern international tax provisions,” said Jay Timmons, CEO of the National Association of Manufacturers (NAM).

Other trade groups such as the Associated General Contractors of America (AGC) and the American Petroleum Institute (API) also objected to the proposed tax changes.

US infrastructure plan - the breakdown
Program Cost
Transportation 621
Modernise bridges, highways, roads, streets 115
Road safety 20
Modernise public transit - bus, rail, track, stations 85
Amtrak rail repairs, upgrades 80
EVs, incl incentives, charging stations, replacing diesel transit vehicles 174
Airports 25
Inland waterways, coastal ports, land ports of entry, ferries 17
Reconnect neighborhoods (transport) 20
Ambitious projects' - large and complex (transport) 25
Infrastructure resilience - incl aid to rebuild vulnerable communities, restore nature infrastructure 50
Water, power, broadband 342
Replace 100% of lead pipes 45
Modernise water infrastructure 56
Monitor and remediate PFAS from drinking water systems 10
Broadband access 100
Power infrastructure, including clean energy 100
Plugging orphan oil and gas wells 16
Remediation and redevelopment of Brownfield and Superfund sites 5
Conservation workers 10
Housing and buildings 300
Build, improve, retrofit 2m affordable homes 213
Build and rehabilitate 500k homes 20
Public housing infrastructure 40
Clean Energy and Sustainability Accelerator for retrofits 27
Schools, care facilities, hospitals 165
Build and upgrade schools 100
Build and upgrade community colleges 12
Upgrade child care facilities 25
Modernise VA hospitals, federal buildings 18
Modernise federal buildings 10
R&D and technology 180
National Science Foundation 50
R&D for innovation and jobs in rural areas 30
Upgrading R&D labs 40
Clean energy, emissions R&D 35
R&D and centres of excellence at HBCUs and MSIs* 25
Manufacturers and small businesses 300
New office at Dept of Commerce to monitor and fund investments in critical goods 50
Semiconductor R&D 50
Pandemic protection - medical mfg, R&D, vaccines development 30
Federal procurement for clean energy 46
Regional innovation hubs, community-led projects 20
National Institute of Standards and Technology (NIST) 14
Programs for US manufacturers - capital access and supply chains 52
Small business access to capital, R&D 31
Rural and Tribal Nations economic development 5
Workforce development 100
Dislocated worker job training 40
Job training underserved communities 12
Apprenticeships, career services 48
Other 410
Care for elderly and disabled 400
Worker protection enforcement 10

*HBCUs are Historically black colleges and universities, MSIs are minority-serving institutions

NOTES: Categories 'Schools, care facilities, hospitals', 'Housing and buildings', Water, power broadband' and 'Other', and cumulative cost totals for these were not categorised in the plan but calculated separately. Dollar amounts were not provided for certain tax credits. The total dollar amounts specified were calculated to $1.95tr.

Source: US White House

Reader note: Commentary on infrastructure plan breakdown added in paragraph 3 along with table at end. Data on PE into wire and cable added in paragraph 22. Comments from Jefferies added in paragraphs 5, 6 and 9.

Insight article by Joseph Chang

Additional contribution by Rhian O'Connor, Adam Yanelli and Janet Miranda

Thumbnail image shows a construction site. Source: Shutterstock