Biden’s infrastructure package is ambitious, but economists at Capital Economics doubt it will pass in its current form. If it did pass, the impact on energy markets could be large but they doubt it would be too significant for industrial metals markets.
American Jobs Plan towould impact commodity markets through a variety of channels
“It is unlikely the Plan will pass as a standalone bill, especially not in its current form. To do so, the President would have to garner support from at least 10 Republican senators or eliminate the filibuster, both of which appear unlikely. As a result, we think the most likely outcome is that the Plan is passed through budget reconciliation sometime after October this year, in a bill that would probably include aspects of the American Jobs Plan and Made in America Tax Plan.”
“On the energy side, it would pose a significant downside risk to our long-term oil, natural gas and coal price forecasts through an accelerated adoption of electric vehicles and the replacement of fossil fuels in electricity generation. However, we are particularly sceptical about whether the carbon-free electricity generation target will end up being included in any final bill.”
“While there could be a sizeable impact on the prices of nickel and cobalt from faster EV adoption, we think that the impact on most industrial metal prices would be fairly small. First, there is a lack of ‘shovel ready projects’ to build, which means that any boost to demand will only come to fruition at the tail-end of the Plan, when supply may have had time to adjust. And second, compared to some energy commodities, China is a significantly bigger end-user of most industrial metals than the US and the expected downturn there will more than offset any boost to US consumption, even if the American Jobs Plan is passed in full.”
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