History’s largest economic power struggle is about to begin

Former exploration geologist, James Cooper, explains why a US vs China economic showdown is set to push commodity prices to new extremes.
James Cooper

Fat Tail Investment Research

Now here’s a fact that might surprise you…

Amid 2022’s financial chaos, North America’s largest steel producer Nucor (NYSE: NUE) was booming…. While many analyst and economists were predicting a construction and housing price crash in the United States, this US steel giant was delivering its best year on record.

That’s according to Nucor’s latest earnings report, indicating the company had its most profitable year, eclipsing prior records set in 2021.

So, what gives?

It’s been a long time since steel manufacturers experienced boom conditions… The last period was during the early 1970’s when steel production reached a peak in the US.

Steel production is not a sector that garners much attention in this tech-focussed nation.

Especially so when the US has just experienced a prolonged period of unrelenting rate rises…. Construction, the key demand for steel, would normally be the first casualty in this type of environment.

But Nucor’s stellar performance over the last few months would suggest otherwise.

According to the company it produces steel products ranging from beams, structural tubing; electrical conduit; steel racking; steel joists; concrete reinforcing steel; steel fasteners; overhead doors; steel grating; and wire mesh.

Basically, any type of steel component needed in US construction is manufactured by Nucor.

Given the recent earnings results, it’s not surprising then that the company is experiencing unprecedented demand for these products.

But Nucor’s stellar run over the last few months has likely astonished many market observers… Particular those that believe we are on the verge of economic calamity, thanks to persistently high inflation and record levels of government debt.

Yet right now, America’s largest steel manufacturer, a company whose revenue is entirely dependent on economic growth, continues to post record breaking earnings.

It’s why the stock is trading at near-all-time highs…

Source: ProRealTime

But is this the top for Nucor?

For the moment, there’s no sign investors are looking to jump out of Nucor’s stock any time soon…. That’s despite strong consensus of US recession in 2023.

Nucor isn’t the only US based steel producer defying analyst expectations.

Reliance Steel and Aluminium (NYSE: RS) a producer of steel alloys and aluminium for the construction industries across North America is experiencing similar growth.

The stock was up more than 30% in 2022 and has added a further 17% to its value this year.

See for yourself below…

Source: ProRealTime

With the company’s latest earnings report due shortly, recent price action suggests positive results are on the way.

So why are US steel manufacturers defying the rather pessimistic outlook for the US economy?

One key reason could be this…

The US… In the fight of its life to maintain economic dominance

Many analyst have their eyes firmly fixed on China’s re-opening.

It marks the ‘re-awakening’ of an economic powerhouse that sat in stagnation for three years thanks to self-imposed lockdowns.

But could this reawakening be the final leg up before China takes economic dominance away from the United States?

Perhaps…. But don’t expect the US to go down without a fight.

Some commentators suggest the brewing power struggle will insight war between the two nations, instead I believe it’s setting up for a major economic showdown… Where both superpowers attempt to stamp their authority over supply chains.

How they undertake this power struggle will be vastly different.

For China, it means re-igniting its multi-trillion Belt and Road Initiative (BRI) to secure trade routes throughout Asia and Africa.

Of course, the country will need to work through its domestic issues first… Stimulus will play a large role in strengthening the country’s beleaguered housing industry.

No doubt though, once these issues have been dealt with, XI Jing Ping will be ready to re-exert his authority over international supply chains.

That’s the primary goal of the BRI development.

It means extending highways, shipping lanes and railways from China all the way through to the Middle East, Russia, and Africa.

But for the US, re-imposing its influence in the global economy will look quite different...

It means replacing its crumbling infrastructure… Roads, bridges, ports, hospitals, airports, utilities, neglected for decades will need to be rebuilt if it seeks to hold its position as the world’s largest economy.

You can bet the US will do all it can to make this happen.

Both China and the US are set to throw trillions at their respective ambitions.

According to a recent White House statistic, the US government has already approved more than 20,000 infrastructure projects that are set to come online over the coming months and years.

It’s part of a $US 3.5 Trillion ‘Biden Agenda’ that aims to rebuild critical infrastructure across the nation.

That’s good news for companies like Nucor and Reliance Steel and Aluminium which continue to defy the odds…. As the nation looks to rebuild, there will be a focus on using ‘American made’ steel.

However, Australian resource companies are set to benefit in a big way too.

Mining companies here will be feeding the raw materials to both China and the US as each nation attempts to take the lead in this coming economic power struggle.

No doubt, the situation in China has been well reported… The country’s emergence from lockdowns late last year have been a boon for commodity prices in 2023.

Its offered strong tail winds for copper, causing many analyst to suddenly flip on their long term outlook for this strategic metal.

However, analysts are underestimating the US’s role in this power struggle.

US preparing to re-stamp its authority over economic dominance

According to many observers, China is destined to overtake the US as the world’s largest economic superpower.

That’s because, until recently, the US has been benign to the China growth story.

While it has been slow in reacting to the power challenge… the US will not give up on its century long economic dominance easily.

Importantly too, unlike China, the United States still has a growing population.

The US added the equivalent of Australia’s entire population in the last 10 years…. That’s around 25 million people.

The United States continues to take on the lion’s share of global immigration… That’s in stark contrast to the communist Chinese government that shuns outsiders.

In terms of demographics, the United States sits in a far stronger position.

But what’s sorely lacking in the US is competitive infrastructure.

Suffering from decades of underinvestment much of America’s neglected utility and transport facilities would not look out of place in a third world economy.

That’s in stark contrast to America’s bygone years where it represented the shining beacon of democracy and infrastructure that was the envy of the world.

The US has an enormous task ahead if it’s to avoid economic decay… Modernising its vast infrastructure will be the springboard that rejuvenates its economy for decades to come.

Utilities, fibre optics, railways, bridges, roads are the fertile grounds that allow business to flourish… Efficient transport and reliable supply chains are the lifeblood that fuel economic growth.

That’s why the US will move heaven and earth to act on its multi-trillion dollar commitment to rebuild and retain its status in the global economy.

It simply cannot afford to let its roads and bridges crumble.

So how do you prepare for this situation as an investor?

These colossal nation building ambitions will place enormous pressure on raw materials.

History’s largest economic power struggle is about to begin… Now is the time to own resource stocks.

PS: My ‘Age of Scarcity’ mining stock buy list...launched with my service Diggers and Drillers last November...is off with a blast. And it’s all calibrated with the above dynamic in mind.

As you’ll see here, all of my picks (none mentioned above) are also ‘grubstake takeover’ contenders.

My primary play is a rare earth stock I’ve dubbed ‘Son of Fortescue’...and it has already smashed right through my buy-up-to price.

But don’t worry.

I’ve identified several others riding in its slipstream. You can find out more about them here…

All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.

2 stocks mentioned

James Cooper
Commodities Analyst and Editor
Fat Tail Investment Research

James is a former exploration geologist, turned mining analyst with postgraduate qualifications and has extensive operational and financial experience in the mining industry. He’s worked for major and junior companies throughout Australia and...

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.


Please sign in to comment on this wire.