Making steel seems like it's a low-tech job, but that's far from reality. That's why it's such an emotional blow to see iconic U.S. infrastructure being built with foreign steel—it suggests that the domestic steel industry can't compete. But the new Tappan Zee Bridge is proudly using steel from U.S. mills, which may be the start of an important trend.
Can't do it
When the Metropolitan Transportation Authority of New York (MTA) was planning the Verrazano Bridge project, it chose to use Chinese steel. Originally it said it, "could not find an American fabricator." After complaints, the MTA changed its tune, claiming that no U.S. steel company could meet its specifications and time line for the project.
It's not the first domestic bridge built with foreign steel. For example, in 2010, then-California governor Arnold Schwarzenegger visited the factory producing steel for the Bay Bridge. He had to travel to Shanghai, China to do it. These are painful examples of a trend that suggests U.S. steel has lost its edge in key infrastructure projects. Since such projects are more common overseas, that may not be so surprising.
Age is working against us
China and other developing nations are building the type of infrastructure that we've had for decades. So long, in fact, that our infrastructure is in need of replacement. The Verrazano project is just one example. A more recent one is the replacement of the Tappan Zee Bridge. These are old, worn bridges that have to be replaced, lest they collapse under the stress of rush hour traffic like the I-35W Mississippi River Bridge in Minneapolis, Minnesota. That tragic 2007 event killed 13 people and injured 145.
The difference between the Verrazano project and the Tappan Zee project, however, is the steel. The Tap, as us locals lovingly call it, is using steel made in the United States. ArcelorMittal (NYSE:MT), a foreign company, owns the plants providing the steel, but at least those plants are located in the United States, proving that we can, in fact, still build a big bridge from the ground up. With so much infrastructure in need of repair or replacement, this win could lead to more U.S. projects for domestic ArcelorMittal mills.
ArcelorMittal's success here, however, doesn't change the larger dynamics in the steel industry. For example, Nucor (NYSE:NUE) CEO John Ferriola has pointed a finger at China. In the fourth quarter conference call he stated that, "Global steel production overcapacity is the greatest threat to Nucor and to our entire industry." In the third quarter he said China has, "...at least 300 million tons" of excess capacity.
AK Steel (NYSE:AKS) CEO James Wainscott has been even more direct. In his company's third quarter conference call he said, "...we should not have to compete with unfairly traded imports, which are dumped here at below-cost prices and are subsidized by foreign governments, which is exactly what we are competing against today."
After fielding complaints about Chinese steel on the Verrazano Bridge, MTA spokesman Adam Lisberg told the Daily News, "We want to work with the domestic steel industry to increase its capacity to fabricate orthotropic decks, because we share the same goal of trying to keep more of this work in America." It's no wonder the Tappan Zee Bridge is using U.S. steel.
As this "Buy American" mentality takes deeper hold, look for more U.S. mills to get work. That will be a boon for Nucor, AK Steel, and U.S. Steel (NYSE:X), among many others. Only ArcelorMittal and U.S. Steel show that the global steel industry has changed in other ways, too. Arcelor is a foreign company that owns U.S. assets. U.S. Steel is a domestic company with operations around the globe, including in Canada, Mexico, Brazil, and Europe.
So buying American made steel may or may not involve an American domiciled company. But either way, it's a nice trend to see in an industry that's felt so much pain domestically. With more big repair and replacement jobs likely on the way, keep an eye on the trend away from foreign steel for U.S. infrastructure projects.
Here's another huge change taking shape in the United States...
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Reuben Brewer has no position in any stocks mentioned. The Motley Fool recommends Nucor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.