Divergent views on China.

Just a mile or so from this office, a used hot rolling mill is being dismantled and shipped to Shenyang, China, for reassembly. The mill equipment, previously operated by LTV Corp. and its predecessor companies, will not go back into production until 2009, a year for which economists can only take wild guesses as to what amount of steel will be in demand worldwide.

When it comes to China, guessing is often part of the equation for Americans. It's not all guesswork: The nation's metal and paper industries have expanded in the past few years, and Chinese buyers of secondary commodities have become an important part of the scrap markets in North America.

But the guessing starts coming into play when determining China's future role. At the Commodity Roundtables event hosted by the Institute of Scrap Recycling Industries Inc. (ISRI) in Chicago last month, speakers had different views on how that nation's economy may evolve.

China's continued ability to pump out ever-increasing amounts of steel is considered a major factor in a forecast prepared by World Steel Dynamics (WSD) and presented by Peter Marcus of that research firm. In a forecast that ultimately predicts a ferrous scrap shortage (and high prices), Marcus predicates it partially on Chinese crude steel production reaching 317 million metric tons in 2010, up from a projected 210 million metric tons this year.

Although noting that China's "craze" to build additional blast furnaces and strip mills could result in "not so favorable" profit prospects for Chinese mills by the end of this decade, the WSD forecast still anticipates the Chinese economic expansion will forge ahead the rest of this decade.

Another Roundtables speaker, however, adopted a more cautious tone. Adam Minter is a freelance journalist living in Shanghai who has been monitoring that nation's media and studying China's construction, metals and recycling industries for a series of stories for ISRI's Scrap magazine.

Minter remarked that the economic boom in China is driven by public spending, made possible by fiscal policies and a banking system that are far from market-based. "Be careful," Minter warned attendees. "As soon as the public spending stops, the demand for your scrap stops."

Whether the public spending will gently ease back, to be replaced by consumer spending and private sector investment, or whether it will jerk to a halt is the key question. Anecdotal evidence suggests Chinese banks are operating with non-performing loan ratios and a lack of collateral that could lead to a bank collapse that would make the 1980s S&L scandal look like a slight hiccup.

Such an earthquake in the Chinese economy would probably be felt in scrap markets early. As Eastern European economies adjusted to the fall of the Berlin Wall, scrap dealers and steelmakers here were the first to realize it, as finished metals and obsolete scrap poured forth from Caspian and Black Sea ports.

With China having established its major foothold in the basic materials markets, recyclers and recyclables consumers of all materials--metal, paper and plastic--should monitor developments in China with careful attention.