Steel Demand Increasing Due to Asian High Rise Boom

On the corner of Fifth and 34th Street in New York City rests the epitome of American progress.

Considered by some as the Eighth Wonder of the World, the Empire State Building was erected at the height of the Great Depression…pieced together with Indiana limestone and adorned with aluminum and chrome-nickel steel.

At the time, it stood as the tallest building in the world, at over 1,400 feet. Construction consumed 60,000 tons of steel…10 million bricks…1,172 miles of elevator cable…6,400 windows…60 miles of water pipe and over 3,500 miles of telephone and telegraph wire.

Even with all that, the building took only 14 months to complete, costing less than half of its original $50 million budget.

But the world’s tallest skyscraper is much more than the world’s top-quality office space. It symbolised the progress of a nation rebuilding – a beacon of economic growth.

The strength of its image became universal.

One could argue the construction of the Empire State Building was a turning point for the U.S. economy and morale during the heart of the Great Depression, ushering in the world’s first skyscraper boom.

Soon, skyscrapers began popping up throughout the American landscape: In Atlanta, Dallas, Houston, Charlotte…the World Trade Center in ’72…the Sears Tower in ’73. Every U.S. skyline you see today grew in a span of about 40 years.

These buildings required miles and miles of steel beams…hundreds of thousands of tons of cement…The IDS center in Minneapolis required enough reflective glass to provide two pairs of sunglasses for each resident of Minnesota and one pair for each resident of North and South Dakota.

The Sears Tower, the nation’s tallest building, contains 2 million cubic feet of concrete and 76,000 tons of steel. And its foundation spans two entire city blocks.

Few people ever stop to think about the massive amounts of steel and cement that go into these structures. But those who did – especially in the early 1900s – could have made a fortune, especially those invested in steel.

Between 1904-1930, shares of U.S. Steel rose an average of 66% a year! Of all the components used in skyscrapers, steel grasps my interest the most.

Steel products are used in everything from the construction of buildings, bridges, railway rolling stocks, industrial pipes and tanks to numerous automobile parts and Campbell’s Soup cans. So when a major macro-event like a building boom increases demand, supply becomes even tighter as other industries involved in general infrastructure and development compete for the same fundamental resource.

Right now, the world’s “second skyscraper boom” is currently under way, and to no one’s surprise, it’s happening in the newest region of massive economic growth…Asia.

If steel production per person in China were to climb to U.S. levels, it would mean that China’s aggregate steel use would double by 2031, to a level equal to the current consumption of the entire Western world. And when you add in developing countries like India, Malaysia, Indonesia and Vietnam, the numbers become staggering. We’ll get to the specific figures in a minute.

Unlike the general use we see here in the U.S., high-rise buildings in Asia will provide much more than Grade A office space…These buildings will be the bedrock for the region’s rapidly emerging middle-class housing.

Roughly 50% of the world’s population lives in the region of the world experiencing the most dynamic growth. Last year alone, these economies accounted for more than half the world GDP. They now churn out 43% of the world’s exports and hold 70% of the world’s foreign exchange reserves.

And while real wages in the developed West are either flat or falling, wages among the up-and-coming nations of Southeast Asia continue growing.

So the world’s latest member of the “middle class” will begin demanding spacious, convenient living in the immediate future.

Buying commercial real estate in Asia today is a lot like investing in American real estate at the end of World War II.

You may remember the Levittowns that shot up across the United States over 50 years ago. These carefully planned neighborhoods provided affordable housing for the thousands of young soldiers returning home from the war. But more importantly, these planned neighborhoods served as the new model for America’s booming middle-class suburban lifestyle.

The emerging markets of Southeast Asia are currently experiencing a similar transformation. Except they’re not peppering the landscape with tree-lined streets and 2.5-bedroom, 1.5-story ranch houses. High-rise apartment complexes are the new Levittowns of Asia.

You could easily move into one of these buildings and never find a need to leave. These buildings include everything from grocery stores and retail outlets to fitness centers with swimming pools.

Asian developers are utilising this high-rise housing model for one specific reason: Land is scarce. Most Asian economies lack the expansive terra firma we in the West find so readily abundant.

Take Singapore, for example…It’s roughly 3.5 times the size of Washington, D.C., with an economy greater than New Zealand’s and a growth rate double that of the United States’.

Hong Kong is another example: It’s only six times the size of our nation’s capital, with an annual GDP on par with Argentina and Portugal.

The point is…land is, and always will, be the most valuable asset in places like Hong Kong, Shanghai, Tokyo, Taipei and Singapore. These Asian cities lack the land for urban sprawl we in the U.S. see in places like Chicago, Washington, Houston, Los Angeles, Charlotte and Atlanta.

So when you can’t build out, you build up. And that’s exactly how these Asian economies are making their magnificent growth possible.

I travel back and forth to Asia a couple of times each year. Whether I’m in Hong Kong, Bangkok, Shenzhen or Shanghai, the landscape is constantly changing.

It’s dynamic…exciting…like nothing the world has ever seen. You feel like you’re watching a flipbook in real time as thousands of cranes blanket the landscape lifting I-beam after I-beam to new heights. One ambitious plan calls for a 200-story high-rise on the edge of Hong Kong’s Victoria Harbor. That’s twice the size of the Empire State Building.

In Hong Kong, for example, prime locations in the coveted Central District are running so thin that the government has commissioned even more land reclamation, stretching the island even further into the blue waters of Victoria Harbor.

The need to build up instead of out also explains why seven of the world’s 10 tallest buildings are now found in Asia. And there is plenty of room and desire to build more.


Christopher Hancock
for Markets and Money

Chris Hancock

Christopher Hancock has spent the last two years doing investment research primarily focused on emerging markets, specifically China and Hong Kong. After working with Citigroup in Hong Kong on the challenges and opportunities associated with the forthcoming RBM flotation reform, Christopher left many of his friends behind and decided to return to the States to pursue a career in equity research. Christopher's desire to work for an independent firm led him to Agora Financial, where he now is the editor of Free Market Investor. Christopher travels extensively and utilizes his contacts across the globe to recommend the best international investments in the world right now for his subscribers.

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