Land of steel.

Economic growth that continues to move at a 9 percent annual pace in China remains a steel-intensive form of growth, fueled by construction and the production of durable goods.

Speaking to attendees of the China International Metal Recycling Forum in Guangzhou, China, in November 2003, Wu Jianchang of the China Iron & Steel Association (CISA), noted that China's steelmaking capacity has been growing at annual rates of up to 20 percent for several years.

If ferrous scrap prices are any yardstick, this ballooning production finally hit critical mass in the North American market in mid-2002. During the late spring, even though North American manufacturing remained in a slump, Asian demand for U.S. scrap became enough of a presence in the market to start driving prices upward in a pattern that continues as of early 2004.

CISA's Wu Jianchang says China's steelmakers imported 8.5 million tons of ferrous scrap in 2003. Although the nation's electric are furnace steelmaking capacity is a relatively low 17 percent of its total, the overall boom in the industry has caused a spike in demand for all feedstocks, from iron ore to pig iron and to scrap.

Through the balance of 2002 and into 2003, China's demand alone seemed to propel the ferrous scrap markets, as recycles throughout North America reported no problem finding buyers for their scrap each month at ever-higher prices.

In the first quarter of 2004, market conditions are not changing. Ferrous scrap continues to be shipped out as fast as it comes in, and while mill buyers are not happy with prices, they need the raw materials.

Domestically, ferrous scrap prices have driven steel prices higher just as demand for finished steel might be moving forward based on increased manufacturing activity.

The last thing manufacturers wish to see are higher scrap and steel prices (coupled with higher energy prices) putting a clamp on a manufacturing revival.

Some manufacturing trade associations are calling on the government to restrict ferrous scrap exports as a means of helping domestic steelmakers and manufacturers remain cost-competitive. While this would not technically be a price control, most observers believe that forcing domestically generated scrap to remain in North America would certainly accomplish the same thing.

The Institute of Scrap Recycling Industries Inc. (ISRI), Washington, has already declared its intention to rally against any such federal effort. "Protectionist export controls are not the answer to improving the steel industry's situation or to helping the American economy," ISRI Chair Charles "Cricket" Williams remarked in an ISRI news release.

In the release, Williams remarked that President Bush had outlined his Administration's trade policy in his January State of the Union address when he said, "My administration is promoting free and fair trade, to open up new markets for America's entrepreneurs and manufacturers and farmers, to create jobs for American workers."

But if a Wall Street Journal report from early February is accurate, several trade associations have already met with the U.S. Commerce Department to plead for the export controls. As of press time, the Commerce Department has not announced any intentions to take action on scrap export restrictions.

No. 1 Heavy Melt Composite Pricing

Jan03            $106.41
Feb              $115.91
Mar              $120.42
April            $119.80
May              $109.04
June             $106.13
July             $111.21
Aug              $123.32
Sept             $128.35
Oct              $130.67
Nov              $144.03
Dec              $159.88
Jan04            $177.47

Source: American Metal Market (per gross ton, monthly average)

Note: Table made from bar graph.