INSIGHT: Smaller US infrastructure bill faces hurdles, would boost GDP, chems

Author: Joseph Chang

2021/08/10

NEW YORK (ICIS)--The $1tr US infrastructure bill, which just passed the Senate, faces hurdles to final passage, with timing potentially running into 2022.

Even in its scaled-back form versus the original ambitious plan, it would give the economy and the chemicals sector a major boost.

The bill includes $550bn in new federal spending over five years, including $110bn in roads and bridges; $66bn in passenger and freight rail; $39.2bn for public transit; $65bn for high-speed internet deployment; $17.3bn for ports and waterways; $55bn for clean water; and $73bn for renovating the electric grid.

Also included is $8bn for clean energy investments (including hydrogen R&D and hubs), $7.5bn for zero- and low-emission buses and ferries, $7.5bn for electric vehicle (EV) charging stations, $3.5bn for four direct-air-capture (DAC) industrial hubs, $4.7bn for plugging orphaned gas wells and $2.5bn in carbon capture and demonstration projects.

Adding yet more fiscal stimulus, especially in hard assets, would significantly increase demand for chemicals and polymers.

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 will require not just steel, but a good volume of industrial coatings.

For public transit – think new electric buses along with trains - a wide array of automotive polymers will be required, including nylon, polyurethanes (PU), polypropylene (PP), acrylonitrile butadiene styrene (ABS), polycarbonate (PC), polyethylene (PE) and polyvinyl chloride (PVC), along with synthetic rubbers and fibres.

For clean water, specifically pipes, PVC along with copper and galvanised steel would be typical lead pipe replacements.

Building out massive broadband access would boost demand for wire and cable compounds - those used for jacketing the wires and fibre optic lines that enable high-speed internet connections.

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.

While the US infrastructure bill is no doubt a major positive for chemicals demand, it has been scaled back significantly from its original $2tr plan – not surprising in a bipartisan process.

HOMES AND BUILDINGS ABSENT, VEHICLES CUT DOWN
Perhaps most disappointing for the chemicals sector is the absence of wide-scale investment in residential and commercial buildings in the plan.

The original plan unveiled in March 2021 called 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.

This would have been a huge boon for key construction polymers such as PVC, polyurethanes, expandable polystyrene (EPS) and polymethyl methacrylate (PMMA). Construction applications account for 68% of PVC, 51% of EPS, 30% of polyurethanes, and 28% of PMMA on a global basis, according to ICIS Analytics.

And the level of investment in new vehicles and trains has also been scaled back dramatically.

The original plan called for $85bn to modernise public transit (bus, rail, tracks, stations), an additional $80bn just for Amtrak rail and $174bn for EVs (purchase incentives, charging stations, replacing diesel transit vehicles).

In comparison, the Senate bill allocates $39.2bn to public transit, $66bn to passenger and freight rail and just $7.5bn to zero- and low-emission buses and ferries.

LEGISLATIVE HURDLE
The key legislative hurdle lies in the House of Representatives, where House Speaker Nancy Pelosi has vowed not to take up the infrastructure bill until another separate $3.5tr spending package focused on climate change and social issues is passed.

The House is not scheduled to return from recess until 20 September.

Senate Democrats aim to pass the budget framework through a process called budget reconciliation, where a simple majority vote is enough to pass the resolution rather than the usual supermajority of 60%.

The Senate is split 50-50 with Vice President Kamala Harris, holding a decisive vote in any tie between Republicans and Democrats.

The process on the $3.5tr spending package could take months and potentially run into 2022, as Republicans universally oppose the bill, requiring all 50 Democrats in the Senate to be on board.

Additional reporting by Janet Miranda

Insight article by Joseph Chang