American Scrap Coalition Expresses Concern over Ferrous Scrap Exports

 (The following is a reoport that was issued by the American Scrap Coalition)

The American Scrap Coalition (ASC), in a report on the ferrous scrap export market, notes that the United States continues to experience a crisis with respect to the availability of steel scrap. Despite a worldwide collapse in steel production, U.S. scrap exports continued to increase at an unsustainable pace. In 2009, the United States exported nearly one-third of all the ferrous scrap it “produced.”

In the report, the ASC notes that China is the overwhelming cause of this crisis, as U.S. scrap exports to China have more than doubled, even in a year where both U.S. and global steel production fell sharply. The result of strong exports of ferrous scrap, prices for the raw material have increased to levels not seen since September 2008. For domestic consumers, according to the ASC, higher prices have had a severe negative impact.

TOP DESTINATIONS OF U.S. SCRAP EXPORTS, 2005 – 2009 (SHORT TONS)

Country	2005	2006	2007	2008	2009
China	3,894,708	3,894,708	2,705,747	3,101,667	6,848,997
Turkey	1,654,855	2,723,891	3,594,929	4,940,345	4,057,243
Korea	1,240,095	1,487,348	1,502,446	2,884,002	3,425,861
Taiwan	312,479	788,850	1,803,911	2,728,012	2,458,711
India	888,814	681,117	860,483	972,850	1,740,160
Canada	2,378,813	1,656,663	1,557,947	,1836,291	1,069,862
Vietnam	28,759	509,318	176,348	341,375	826,287
Malaysia	504,295	999,707	1,335,031	1,384,210	759,853
Mexico	1,654,718	1,219,161	953,232	933,826	736,433
Thailand	371,616	508,360	944,982	1,171,095	506,318
Indonesia	207,134	126,576	239,392	408,614	406,400
Egypt	229,568	432,511	555,337	958,550	398,174
Pakistan	42,624	76,736	239,603	209,040	366,808
Greece	25,020	250,023	375,210	304,424	246,777
Peru	48,288	70,038	82	154,768	170,830
Hong Kong	54,078	150,812	278,315	184,396	109,854
Bangladesh	31,255	271,548	132,862	123,754	100,337
Japan	44,684	56,210	221,610	480,087	76,557
Brazil	11,466	6,607	4,582	2,733	70,517
Switzerland	448	1,124	3,397	103,138	60,358
All Others	654,540	60,2927	68,1054	524,920	278,736
Total U.S. Exports	14,278,257	16,394,154	18,166,498	23,748,096	24,715,075

The report finds that last year both total and net scrap exports from the United States reached their highest levels ever. Total scrap exports in 2009 were 24.25 million short tons, while net exports were 21.4 million tons. Total scrap exports increased by 4.1 percent from 2008 to 2009, and by 73 percent from 2005 to 2009. It is likely that in 2009 the United States was once again the largest exporter of steel scrap in the world. U.S. imports of scrap, on the other hand, were nearly 17 percent lower in 2009 than in 2008.

The increase in exports occurred even as global steel production in 2009 fell 8 percent from 2008. However, China’s production of steel actually increased by more than 13 percent from 2008 to 2009. If China is excluded, world production from 2008 to 2009 fell by 21 percent.

In 2009, China was by far the largest importer of scrap from the United States, with total imports of 6.8 million short tons. This was an increase of 121 percent from 2008, despite a global recession and unprecedented declines in global demand for steel. Exports to India also increased sharply, growing by 79 percent. Five countries – China, Turkey, Korea, Taiwan, and India – accounted for 75 percent of all U.S. scrap exports. The following chart shows exports of scrap from the United States to the top 20 importers from 2005 through 2009.

U.S. consumption of scrap in 2009, on the other hand, was significantly lower than in 2008. From 2008 to 2009, U.S. production of raw steel dropped by 36 percent. U.S. consumption of scrap also fell, by 27 percent. Scrap exports in 2009 were 46.7 percent of domestic scrap consumption, compared to only 32.6 percent in 2008, and less than 20 percent in 2005.

Scrap Prices

Scrap prices peaked in the middle of 2008, before falling sharply. By December 2008, prices in the United States for both shredded auto scrap and #1 busheling had fallen to their lowest levels since mid-2005. Almost immediately, though, prices began to rise again. By December 2009, prices for shredded auto scrap had risen by nearly 42 percent, to $272.63 per ton. Prices for #1 busheling increased by 38 percent over the course of the year, reaching $331.82 per ton. Scrap prices in 2010 have continued to move sharply upwards; the latest AMM price for shredded auto scrap in March 2010 was $350 per ton, while the price for #1 busheling was $443.75. These represent increases of 28 percent and 33 percent respectively over just three months.

Steel scrap is exported from the United States without any restrictions. However, a number of countries, including China, Russia, Ukraine, and Argentina, impose restrictions on exports of steel scrap. By artificially limiting global scrap supply, these restrictions increase worldwide prices for scrap and draw scrap out of the United States into world markets. This drives U.S. scrap prices higher. At the same time, by artificially increasing domestic supply, the restrictions make prices for scrap in these countries lower. Significantly, these countries are all large exporters of finished steel.

Conclusion

In 2009 U.S. scrap exports continued to grow even as world steel production declined. This increase was largely the result of higher exports to China and India. This in turn resulted in reduced scrap availability and higher prices in the United States. One of the primary causes of both higher scrap exports and higher scrap prices is the imposition of restrictions on scrap exports by major steel producing countries, including China, Russia, and Ukraine. Until these restrictions are removed, periods of tight supply and extreme volatility of prices will be exaggerated and steel producers in markets restricting scrap exports will benefit from these market distorting practices.