Could we be heading for a battle between domestic mills and
foreign steelmakers for ferrous scrap and other steelmaking raw
materials? It's a definite possibility.
Mini-mills used to be restricted to the rebar and structural
segment of the steel market until German engineers came up with
a system called continuous strip processing (CSP). The
technology gave mini-mills access to the sheet steel business,
a vast and lucrative market.
They leapt into it-not just companies like Nucor Corp.,
Charlotte, N.C., that were already in the steel business, but
also newcomers like Steel Dynamics Inc., Fort Wayne, Ind. They
made sheet, but they still used the electric furnace-and
scrap-to produce the hot steel that would be formed into
Some of the integrated steelmakers have disappeared in the
past few years, while the others have seen their market share
shrink as Nucor and others expanded.
Such an expansion was achievable because there was an
abundant supply of scrap-or so it seemed. But scrap is a
limited commodity. Nobody sets out to create scrap. It comes
from the shredding of wrecked vehicles, the demolition of
buildings and by-products of manufacturing. Scrap dealers buy
and process metals that are no longer wanted and in that sense
have been "recycling" even before the word was coined.
But it isn't just domestic mini-mills that have scrap as
their raw material of choice. Their overseas rivals also have
developed a bigger appetite for scrap. The United States is
closing in on its third 20-million-tonne export year, double
the tonnage that most exporters used to consider a "good" year.
And the pace is not slowing up.
China, which uses basic-oxygen furnaces to produce much of
its steel, also has the world's largest appetite for scrap. It
imported slightly more than 4 million tonnes from the United
States through the first seven months of this year, triple what
it took the previous year. And Turkey, which imported close to
4.5 million tonnes last year, has received a lot of exposure
for its buying binges.
But China and Turkey are mainly bulk cargo buyers of scrap.
In the not-too-distant past that was how all ferrous scrap was
shipped overseas. Not anymore. Many large and mid-sized yards
that are not on the ocean-but not too far away from the
docks-have carved out a niche for themselves in the export
market. They have learned that they can sell container-loads of
scrap to smaller steel mills in Thailand, Vietnam and Taiwan
and not have to worry much about letters of credit and other
items of high finance.
When a major exporter sells a 35,000-tonne handy-max cargo
of scrap, that's easily a $10-million cargo-not exactly pocket
change even for the largest overseas steelmakers. Containers,
on the other hand, may hold between 20 to 40 tonnes,
translating into just a $6,000 or $12,000 invoice.
Another segment of raw materials supply-Venezuelan
hot-briquetted iron (HBI)-is no longer available to U.S. mills.
By executive decree, Venezuelan President Hugo Chavez has
nationalized the Venezuelan iron industry, taking control of
HBI manufacturers Materiales Siderúrgicos SA, Complejo
Siderurgico de Guayana CA, Venezolana de Perreducidos
Caroní CA and Orinoco Iron SCS, as well as the country's
sole seamless steel producer, TenarisTavsa.
Some believe he may be doing this to use more of the metal
at home, but that's a stretch. Others say it's simply one more
salvo in his economic war with the United States.
There will be HBI available for offshore markets, says one
industry source, but Chavez wants the same price that U.S.
mills pay the Brazilians for pig iron. In recent months, much
of the HBI produced by the commercially owned HBI plants in
Venezuela has been exported to Europe at prices said to be as
low as $205 per tonne, cheap when compared with pig iron at
more than $300 a tonne.
By taking over the HBI and steelmaking facilities, the
Chavez government can produce iron at whatever price it
chooses, since the government already owns the iron ore and
natural gas produced in Venezuela, the two main components in
making iron through the direct-reduced iron technology.
But the two products-HBI and pig iron-are not the same
chemically. Pig iron is a cleaner product with higher iron
content and fewer other elements that have to be fluxed or
blown out of the charge. Chavez does not understand the
chemistry and probably won't get the message until those
briquettes start piling up on the docks along the Orinoco
The simple fact is that the United States is the Saudi
Arabia of ferrous scrap. But unlike Saudi Arabia, which uses
very little of its own oil reserves, U.S. steelmakers consume a
vast amount of the available scrap-60 million tonnes a year by
one count, three times the amount going overseas to nations
like China, India, Malaysia and Vietnam. If domestic and
foreign consumption continues at the present pace, how long
will it be before we have to scour even the most remote
locations of our country looking for scrap. And what will it
cost to bring this material to market?