Biden’s initiatives set to boost US supply chains

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Published: Thursday, 11 March 2021

The change in direction on the part of the new United States administration with a greater focus on domestic manufacturing and local supply chains will benefit established and developing industrial minerals as well as metals sectors, including steel, rare earths, graphite and lithium, Davide Ghilotti and Mark Shenk report.

US President Joe Biden’s executive order on the strengthening of American manufacturing, which he signed during his first week in office, is expected to have a direct effect on demand for US-produced raw materials and finished products, but also lead to wider support for developing projects that feed strategic industries, such as transport, energy, defense and infrastructure.

"American manufacturing […] must be part of the engine of American prosperity now," Biden said. "We’ll buy American products and support American jobs."

Biden signaled a previous lax approach to government procurement that turned a blind eye to large volumes of imports for materials sourced elsewhere, instead of relying on domestic supply, is due to change. That specifically singled out iron and steel, but entire sectors such as engines, auto parts and vehicles are set to be put under the microscope.

"Under the previous administration, the federal government contracts awarded directly to foreign companies went up 30%. That is going to change on our watch," he said. The administration will look to tighten the rules on company waivers for foreign procurement, and combine that with more transparency on the products that are sourced abroad, to support domestic manufacturers’ ability to step into those supply chains.

Biden also stressed investment opportunities in sectors including "battery technology, artificial intelligence, biotechnology, clean energy."

The executive order is expected to have two main impacts – a bullish effect for domestic demand in established industries, and a broader support for incoming and developing projects and sectors.

In minerals, this approach could mean important developments for rare earths, graphite and lithium, among others. Global rare earths supply is dominated by China, which accounts for some 90% of total output. The US has a domestic miner of rare earths in MP Materials. It currently ships its rare earths output to China to be refined, but the company previously stated that it had received funding to build processing facilities in the US; while that project was put on hold, it could see a reprise under the new administration.

Additionally, Malaysia-based rare earths producer Lynas announced its intention to set up a processing facility in Texas – a project that will be part-financed with US Department of Defense funding. Rare earths elements are employed in defense systems and electric engines, as well as wind turbines – all core sectors highlighted in the executive order.

Graphite is another mineral where meaningful developments can be expected. At present, the US imports from sources including China, Latin America, Canada and Europe.

As such, junior miners looking to set up local operations could be particularly coveted. It is the case of the former Alabama Graphite, a Canadian-owned developer that was taken over by US mining explorer Westwater Resources in 2018. Graphite mined at Westwater’s in-development Coosa graphite project will feed a western supply chain of spherical graphite for battery applications, the company stated. The firm is setting up a pilot project to produce anode-ready spherical graphite in Chicago and New York, together with a pilot facility in Germany.

Separately, east Africa-based graphite producer Syrah Resources is on track to expand its spherical graphite facility in Vidalia, Louisiana, where graphite anode material is produced from natural graphite that Syrah mines in Mozambique. At present, China still accounts for almost all graphite processing capacity for battery anodes. In January, Syrah said it is on track to expand Louisiana production to 10,000 tonnes per year, with a final investment decision expected in the second half of 2021.

A similar case can be made for lithium developments. The mineral, employed in batteries for electric vehicles (EVs) and energy storage systems (ESSs) is mainly mined outside of the US, and the bulk of processing capacity for lithium chemical compounds is in China. In this sense, the US administration is likely to look favorably at both incoming projects from developers as well as established US companies with interests in lithium operations abroad.

The first group includes Lithium Americas, which is developing its 100% owned Thacker Pass project in Nevada and has a stake in the Cauchari-Olaroz lithium project in northern Argentina, in partnership with China’s Gangfeng Lithium. The Argentina project will have an average expected production of 40,000 tpy of lithium carbonate equivalent and production is slated to start in 2022. The firm completed its federal permitting process for the Nevada project earlier this year.

Incumbent US-headquartered lithium producer Albemarle runs extraction sites in Chile’s Atacama region and is developing the Silver Peak operation in Nevada, where it aims to double carbonate production capacity by 2025.

Steel 

The US steel industry has already applauded Biden’s approach. "We are pleased by the president’s action today," Steel Manufacturers Association (SMA) president Philip K Bell said in a statement. "Executive orders, rulemaking and Congressional legislation should continue to focus on enhancing 'Buy America' in ways that benefit American workers and companies."

The executive order will require government agencies to close loopholes in the way domestic content is measured and boost domestic content requirements. It also will increase the price preference for domestic goods – the price difference that the government can pay over that for material from a non-US producer.

"We are pleased that [Monday's] executive order will tighten up the process for considering waivers to existing domestic preference requirements and will also increase domestic content requirements for defining what constitutes a product that is made in the United States," Kevin Dempsey, president and chief executive officer of the American Iron and Steel Institute, said in a statement. 

The order will create a new position in the Executive Office of Management and Budget that will be responsible for implementing Biden’s push on federal procurement. Agencies will be required to report on their implementation of "Buy America" laws and make recommendations for achieving these goals, and to continue to do so twice a year.

The executive order reiterates Biden’s support for the Jones Act, which regulates maritime commerce and requires cargo between US ports to be carried only by vessels built, owned and operated by American citizens or permanent residents.

"The order’s strengthening domestic content requirements and calling for stricter enforcement of existing legislation – like the Jones Act – is an important step toward revitalizing our manufacturing base, as well as protecting and creating jobs," USW International president Tom Conway said in a statement.

The steel industry also cheered when former President Donald Trump signed a "Buy American, Hire American" executive order on April 18, 2017. Trump’s order was supposed to crack down on the use of waivers and exceptions for "Buy America" laws by requiring federally funded infrastructure projects to use steel "melted and poured" in the United States.

The steel industry projects that the executive order signals the Biden administration’s upcoming infrastructure bill will benefit domestic producers and workers. "Our nation is long overdue for serious, robust investment in our crumbling infrastructure," Conway said. "[Monday’s] action is crucial not only for rebuilding our nation’s broken economy and making our country safer, but for laying a foundation so that all of the work that stems from this investment supports American jobs."

This could signal that the Biden administration will continue the protectionist measures that helped bolster domestic steel prices during the Trump era. The previous administration implemented Section 232 tariffs in 2018, imposing duties on imports on steel and aluminium of 25% and 10% respectively.

Fastmarkets’ daily steel hot-rolled coil index, fob mill US was calculated at $57.81 per hundredweight ($1,156.20 per short ton) on Tuesday February 2, up by 2.2% from $56.56 per cwt on the previous day and by 3.1% from $56.06 per cwt on January 26. This marked the second-highest level on record since Fastmarkets began collecting HRC data in 1960, with the all-time high of $58 per cwt recorded on January 14.