Ferrous scrap market could create new front for trade wars
International
scrap prices have recorded unprecedented increases during the past few months because of soaring demand from Far Eastern markets led by
China, and supply shortage. Prices have become so attractive that almost all
scrap suppliers started to look at exports to Asian countries given the high prices. Subsequently problems due to supply shortage have hit the mills almost everywhere in the world.
US steel industry is one of those to suffer despite the fact that the country has always been one of the major sources of
scrap. It must be noted that the US
scrap exports were already rising during the past three years. Total ferrous
scrap exports were close to 7.5 million tons in 2001 and went up to almost 9 million tons in 2002. But last year was amazing. Total ferrous
scrap export figure from the US is estimated to be around 12 million tons for 2003. More amazing than the increase is the fact that around 6 million tons out of the total figure have been exported to
China and
Korea!
Of course the demand and rising prices keep the US
scrap suppliers and exporters very happy, but it is not possible to say the same for steel makers and end users. Steel makers are obliged to pay high prices for their raw material requirements, and end users have to pay a lot more for their steel needs.
Not surprisingly the US industry players have already started talking about measures to protect their interests, and how to change the direction of
scrap, given the circumstances. It is reported by market sources that certain associations within the industry started talking about the issue.
At this point we have to remember that certain countries have introduced certain controls on
scrap exports in an effort to protect their own steel industries. Russian Federation was one the first to introduce tax on
scrap exports from the country a few years ago. Another major supplier of
scrap,
Ukraine, had imposed a €30/mt tax on
scrap exports by late 2002 for the same reason. Both countries have been refusing to abolish those export taxes despite the pressure from the EU.
Those two countries are leading suppliers of
scrap and export millions of tons per year. But even
Venezuela is trying to limit
scrap exports. The Venezuelan government introduced a licensing system for
scrap exports earlier this month, despite the fact that typical
scrap exports of the country is just over 50,000 tons per year.
The
US steel makers and steel users believe that they have the right to ask for controls on
scrap exports, too. As a matter of fact the Export Administration Act confirms the same. Those associations are also encouraged by the measures taken to control
scrap exports back in 1973-74 under similar circumstances when
Japan and
Korea were heavily importing US
scrap.
Of course
scrap is not the only commodity with rising prices. The steel makers have been facing huge problems, perhaps even more serious ones, with their coke supplies and energy costs. However
scrap looks like to be the only one amongst those that they can look for some sort of relief.
Market sources report that, a petition can be submitted within January for export controls on ferrous
scrap. The opposition would be the Institute of
Scrap Recycling Industries (ISRI) this time, defending free trade in the world. They believe that any petition to impose export controls should be rejected just like the application to reimpose the export ban during late 70s.
We will be monitoring the developments in the US during the course of the next few weeks. However it is clear that, if the US follows
Russia and
Ukraine by imposing severe controls on ferrous
scrap exports, the steel mills in the rest of the world led by those in
Europe,
Turkey,
China and
Korea should start preparing themselves for
scrap prices that would make the prices of today look funny.