Roller-coaster pricing of raw materials has drawn attention
to how some governments might try to keep resources from
leaving their territory. Nucor Corp., with steel scrap as its
chief input, wants to make sure that such action is included in
Washington's agenda on trade distortions.
John Ferriola, chief operating officer of the Charlotte,
N.C.-based company's steelmaking operations, sees lessons to be
learned from the 2007-08 price run-up.
"Some of the reasons (it occurred) relate to supply and
demand and natural market forces at work," he said. "However,
unfair trade practices played a role as well. The United
States, with a comparatively liberal trade regime, exports a
large amount of steel scrap to other nations. Many other
nations have erected substantial trade barriers to restrict
steel scrap exports and maintain their scrap for their own
domestic use." Such barriers also keep their domestic scrap
cheaper than world levels, he added.
Ferriola can list 25 countries with restrictions, most
belonging to the World Trade Organization. However, Russia is
outside the WTO and can't be dealt with through that machinery.
As such, Nucor helped establish an organization to lobby
against these obstacles.
"The American Scrap Coalition is actively considering
whether to ask the U.S. Trade Representative to take action
against one or more countries with particularly egregious
barriers. I can't say much more than that right now," said
Timothy Brightbill, counsel to the group.
Ferriola's list of culprits includes India, a key steel
country, with a 15-percent export tax on ferrous scrap;
Pakistan, with a tax of 25 percent; Indonesia, which bans most
scrap exports; and Saudi Arabia, which reimposed a ban on
ferrous scrap exports after promising the WTO it wouldn't.
Russia discussed cutting its 15-percent export tax in talks
aimed at gaining WTO membership, but Ferriola said that
officials later threatened to impose a higher rate.
China, a major importer of ferrous scrap which before
joining the WTO successfully negotiated for the privilege of
setting such an export tax of up to 40 percent, currently has a
10-percent tax in place.
Unnecessarily high costs for steelmakers are felt throughout
the economy, Ferriola said. "The record-high scrap prices that
we reached recently were not good for Nucor's customers,
particularly if they were unable to pass along unexpected price
changes. Construction, automotive manufacturing, appliances and
foundries are all impacted."
Ferriola acknowledges that one possible scenario is
declining quantities of prompt industrial scrap in the United
States even as world steel production increases.
"In the long term, there is the potential for a continued
decline in U.S. manufacturing, in automotive and auto parts
manufacturing in particular. This could reduce the availability
of certain preferred types of scrap. We saw this earlier in the
year in price spreads among various scrap grades," he said. "On
the other hand, there are many other factors that could
increase manufacturing demand and activity. Nucor is very
confident in the American economy and American manufacturing in
the long term, but we need our government to address trade
distortions wherever they occur."
Nucor's raw materials strategy potentially encompasses
non-scrap alternatives, including "our potential investment in
a $2-billion iron-making facility in Louisiana," Ferriola
As for Nucor's purchase of Cincinnati-based scrap processor
David J. Joseph Co. (DJJ) earlier this year, he said the two
companies had cooperated closely for 38 years. "It is important
to emphasize that DJJ is operating in the same manner as it
always has, with the primary emphasis on maximizing profit for
the long-term success of the company."
The tackling of scrap trade hurdles is an issue that also
appeals to some smaller scrap consumers, such as Benton Foundry
Inc. in Benton, Pa.
Even specialized grades of scrap, less likely to be shipped
abroad, are affected when foreign buyers scoop up the cheaper
obsolete metallics, Tim Brown, Benton Foundry's vice president,
said. "The mills couldn't get enough of the lower-grade scrap
that they wanted. They, in effect, bought up the grades (going
after costlier sorts). That in turn exacerbated the price of
scrap in the prime grades."
Benton Foundry's input materials include rail scrap, slit
scrap, busheling and two grades of pig iron.
The foundry industry has found the Bush administration to be
unsympathetic to complaints about Chinese trade abuses in
matters that didn't involve scrap, Brown said. "Bush was afraid
of the Chinese because they own so much of our debt. They've
been financing us for the last couple of years. You don't want
to (offend) the landlord."
While the weaker dollar has improved the ability of U.S.
foundries to sell to foreign customers, it also has attracted
foreign scrap buyers, notably from Turkey, according to Brown.
But foreign government manipulation also has been a factor, he
said, citing a Russian export tax on ferrous scrap that comes
and goes depending on Russian mills' requirements.
Eliminating anti-market abuses won't always prevent scrap
prices from rising, Thomas A. Danjczek, president of the Steel
Manufacturers Association (SMA), acknowledged. "Scrap
availability does not match the growth of steelmaking.
Steelmaking is growing at a rate of 6 percent per year
(worldwide); scrap availability is not growing at 6 percent per
year. Scrap is likely to be in tight supply in years
Scrap's share of steelmaking inputs will decline for some
years, until the goods made from the expanded steel output come
to be discarded, Danjczek said. That makes it all the more
important to resist unnecessary price rises caused by market
Companies can face higher prices "as long as it's for valid
economic reasons. If it's market manipulation, that's a
different circumstance. We have an obligation to keep our costs
down, to service our customer base," he said. PAUL