For all the anticipation about how President Obama's stimulus plan would create the largest infrastructure build-out in U.S. history, early analysis of the bill that passed the House of Representatives yesterday suggests that the country's industrial base may have been severely short-changed.
For struggling domestic steelmakers like United States Steel (NYSE:X) and Schnitzer Steel (NASDAQ:SCHN), indications that only 5% of the $819 billion package would fund infrastructure investments can hardly come as welcome news. Just this week, U.S. Steel reported a sharp 66% decline in fourth-quarter earnings over the third quarter, and projected an operating loss for the first quarter of 2009.
To be sure, the 3,500 workers who have been furloughed from its mills in recent months were looking to the Obama stimulus to kick-start some demand. Already operating at 45% of capacity, with shipments and prices both expected to continue dropping, U.S. Steel is likely disappointed by this uninspiring infrastructure allocation.
With a market capitalization of $4 billion -- much smaller than rival Nucor (NYSE:NUE) -- and more than $3 billion in long-term debt, U.S. Steel's liquidity position may not be stainless. I perceive Nucor to be in a position of relative strength, which could result in the company absorbing market share if smaller players run into trouble.
Investors in a broad range of infrastructure plays may have reason for concern with the present stimulus plan as well. With the Congressional Budget Office estimating that only about $26 billion would be allocated for infrastructure during 2009, that translates into slim pickings indeed for cement giant Cemex (NYSE:CX), reeling refiners like Valero (NYSE:VLO), and runaway freight trains like Norfolk Southern (NYSE:NSC) and Burlington Northern Santa Fe (NYSE:BNI).
After scrutinizing the stimulus bill, I will provide further commentary about its potential impact in the days to come. I can give you a hint, however: It's not looking very good. In contrast, China's truly massive infrastructure investments will provide a fascinating means to track the success of the two disparate approaches in real time.
As difficult as it is to bet on the away team, I believe the Obama stimulus plan, as currently proposed, essentially seals the contest and leads this Fool to look exclusively to Asia for the first signs of global economic recovery. For domestic bellwethers such as U.S. Steel, it may be time to hunker down beneath a solid steel defensive bunker.
Further Foolishness:
- Ineffective stimulus packages are bullish for gold.
- No wonder this coal miner is moving to China.
- China knows how to stimulate industry.
