The competitive position of electric-arc furnace (EF) steel
producers is dependent on an adequate domestic supply of
reasonably priced ferrous scrap.
The United States owns the world's largest ferrous scrap
supply. Unfortunately, U.S. policymakers are seemingly
non-responsive to scrap export policies affecting the
competitive position of domestic EF steelmakers. Through
apparent indifference to predatory levels of steel scrap
exports, they are permitting five countries-China, Turkey,
South Korea, Taiwan and India-to abuse their access to the U.S.
scrap supply, excessively draining the supply and triggering
U.S. scrap market inflation.
These five countries obtained one-third of the U.S. scrap
supply in 2009, accounting for 75 percent of U.S. scrap exports
that year. They are undermining the American scrap supply,
obtaining the largest tonnages of scrap exports in U.S.
history. If these levels of scrap exports continue, they will
potentially injure the competitive position of U.S. electric
furnace steel producers, who now produce the dominant share of
Moreover, given the involvement of other governments in
world steel scrap trade, there is limited trade equity. Some
countries simply prohibit scrap exports. Others, like China,
impose export taxes to impede the flow of their domestic scrap
overseas. Not one of them would countenance the export of up to
one-third of their available supply. They are too
energy-conscious to permit this, given their high sensitivity
to the needs of their domestic steel industries. In effect,
these are discriminatory trade policy actions which, if not
eliminated, will leave the U.S. with little option but to adopt
its own scrap conservation policy.
A concerted national commitment to increase energy
efficiency is required to meet North America's future energy
needs. The highly efficient energy consumption of EF steel
producers along with the corresponding world's lowest
greenhouse gas emissions per ton is consistent with U.S.
So far, the U.S. is indifferent to the development of a
ferrous scrap export policy similar to those of other nations.
Instead, U.S. policy, or lack thereof, is allowing untenable
amounts of ferrous scrap to be exported. Foreign steel company
recipients then manufacture steel mill products from this
scrap, reduce their energy costs and ship the finished products
back to the United States, often as "beggar thy neighbor" steel
This adversely impacts the competitive position of highly
efficient domestic EF steel producers who must absorb the cost
run-up attributable to excessive foreign demand for U.S. scrap
and the market share loss from such steel product imports.
There is a statistically significant correlation between
world ferrous ore pricing and ferrous scrap pricing, differing
only with a time lag. Thus, as other countries tax their raw
material exports (iron ore, for example) this raises raw
material inputs and steel production costs.
The Steel Manufacturers Association (SMA) strongly opposes
trade distortions engaged in by a variety of foreign
governments with market interventions pertaining to raw
materials, such as iron ore, coke, steel scrap, alloying
elements and refractory materials. Chief among these are export
barriers, including export taxes, export prohibitions, export
quotas, license fees and limitations on who can export.
Government barriers continue to proliferate and have badly
distorted international markets for raw materials; they give
steel producers in the countries imposing these restrictions a
damaging artificial advantage in international trade; they
increase worldwide costs of production; and they place a heavy
burden on steel and manufacturing industries in developing
countries that do not have substantial reserves or supplies of
It is a failed strategy to continue to attempt to negotiate
about raw material restrictions without progress toward a
SMA members, to little avail, have urged all governments to
remove export barriers on raw materials, including those that
are used in steelmaking. The SMA continues to urge other
governments involved in these practices to dismantle their
export barriers that distort conditions of competition and
cause harm both to steel producers and to manufacturers of
steel-intensive goods, again to no avail.
If the U.S. supply of ferrous scrap is mined out to an
unacceptable level by excessive foreign demand from countries
that conserve their own scrap reservoirs, there are clear
national economic security implications to consider. An
inflationary market-clearing scrap price triggered by excessive
foreign demand could surely affect the competitive capability
of U.S. electric furnace producers.
National economic security is a core reason for the United
States to have a viable and strong domestic steel industry not
dangerously dependent on excess foreign steel supply. U.S.
electric furnace producers are an essential component of that
security. That is precisely why U.S. policy should clearly
recognize the value of, and needs to ensure the continued
viability of, the U.S. ferrous scrap supply, the base feedstock
for the preponderant, most efficient share of domestic steel
The United States cannot rely on offshore excess steel
supplies to rebuild the nation's energy infrastructure, its
transportation network, its roads, schools, water works,
bridges, airports and hospitals. The continued competitive
viability of U.S. electric furnace steel producers is very much
premised upon an adequate supply of domestic ferrous scrap.
Thomas A. Danjczek is president of the Steel Manufacturers
Metals Forum welcomes submissions addressing issues of
interest to the metals community.