Tuesday, July 24, 2007


Constructing the Empire State Building consumed 60,000 tons of steel...10 million bricks...1,172 miles of elevator cables...6,400 windows...60 miles of water pipes and over 3,500 miles of telephone and telegraph wires.

But the world's tallest skyscraper was much more than the world's top-quality office space. It symbolized 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 1972...the Sears Tower in '73. Every U.S. skyline you see today grew in a span of about 40 years.

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.

These buildings require miles and miles of steel beams... hundreds of thousands of tons of cement... The Twin Towers alone consumed roughly 425,000 cubic yards of concrete... That's enough concrete to lay a sidewalk five feet wide from New York to Washington, D.C. The building also required 12,000 miles of electric cable...198 miles of heating ducts...and 200,000 tons of steel.

Few people have ever stopped 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 (X: NYSE) 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.

If steel production per person in China alone were to climb to U.S. levels, it would mean that China's aggregate steel use would double by the year 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.

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 World War II. 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 utilizing 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'se xactly 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. 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.

Right now, there are 10,498 skyscrapers here in the United States... That's roughly one building for every 28,580 people. China currently boasts 3,603 skyscrapers... approximately 40% of the number of tall buildings in America. That may seem like a lot, especially when you consider China is still in the early phases of economic development.

But assuming America represents a mature economy, and assuming the ratio of skyscrapers to people here in the United States represents a logical target rate for further expansion (1:28,580), when you factor in China's one billion-plus people, you find that China thus far has built only one skyscraper for every 362,562 people!

To reach our hypothetical ratio of 1:28,580, China would need to construct another 42,102 tall buildings to reach that mark.

When you look at the building-to-person ratio of India, the numbers become even more staggering. There is only one building for every 4.1 million people in India! In Indonesia, there's one tall building for every 1.9 million people... In Vietnam, the ratio stands at one for every 3.7 million.

The following chart compares skyscraper development here in the United States with the developing countries of Southeast Asia:

These countries combined would need to construct roughly 100,000 buildings to reach the American model of one tall building for every 28,580 people.

And remember, the American "comparison" discounts the Asian demand for residential housing.

There are currently 1,322 high-rises, 13% of the total number in the U.S., either proposed or under construction right now in those 11 countries.

Total steel production last year equaled 770 million tons. Asian steel production accounted for 66% of that total. Assuming every ton of steel produced in 2006 were set aside for high-rise construction, and assuming current production levels remained stable, it would take roughly five-six years of world production to supply Asia's potential appetite for I-beam and rivet consumption:

If we just concentrated on Asian steel production, high-rise steel demand would consume between six-eight years of steel production.

I believe skyscrapers will be one of the many factors driving Asian steel markets for years to come.

"The Asian automobile industry is certainly contributing its fair share," wrote Chris in a recent report for his readers. "The number of vehicles on China's roads has almost quadrupled over the last decade. With a combination of rising disposable incomes and improved transportation networks, the automotive market will continue to soar."

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