Korea Imposing Restrictions on Scrap Exports

South Korea decided to impose export restrictions on scrap iron and steel bars in a bid to cushion the shock of a growing shortage of raw materials.

The country will also step up efforts to clamp down on speculative stockpiling of scrap iron and other raw materials amid increased shortages of supplies for steel production.

The Ministry of Commerce, Industry and Energy said it will implement restrictive measures as early as March 8 after making the decision public.

The decision came after related industries suffering from a shortage of supplies called for drastic measures to prevent the problem from hurting them further.

“`We made the decision as the raw material supply shortage will be prolonged due to China’s high growth and the global economic recovery,” said  Minister of Commerce, Industry and Energy Lee Hee-beom said.

``But the temporary suspension does not mean an instant ban on exports. The restrictive measure will be lifted when the risk of domestic scrap iron supply shortage fades away,” he said.

The government will also clamp down on speculative stockpiling of scrap iron and other raw materials together with other government ministries, including the Fair Trade Commission (FTC), amid the supply shortage for steel production.

According to the MOCIE, the international price of scrap iron skyrocketed to $340 per ton as of the end of February, nearly twice the $176 per ton in April 2003.

The nation’s scrap iron exports stand at 300,000 tons a year, quite small compared with the local scrap iron demand of 2.3 million tons. South Korea imports 7 million tons of scrap iron to meet local demand.

Meanwhile, China’s iron ore demand increased by 18.3 percent to a record 407.1 million metric tons last year. Its iron ore imports grew to 146 million tons, accounting for 30 percent of global trade.

As for steel bars, seven local steel makers agreed to convert a total of 67,000 metric tons of their export volume to domestic supply to stabilize the local market. They contracted a total of 132,000 metric tons of steel bar exports at the end of last year.

South Korea's steel makers have been forced to repeatedly raise prices to reflect the surge in import costs, passing the financial burden to the nation's main industrial sectors, such as the auto, ship building and construction industries.

Domestic steel makers have also been in fierce competition to secure stable supplies of raw materials. Some industry watchers forecast prices will undergo a correction in July or August due to seasonal factors in China's construction sector.

The prices of steel products are forecast to rise in South Korea due to a continued upswing in the international prices of raw materials as well as a widening price gap between steel products at home and abroad, industry watchers said.

The industry experts speculated that the serious supply difficulties could further worsen as China, the United States and India seek to restrain outflows of raw materials to protect their own steel industries.

There have been claims that China is moving to ban the export of scrap iron following a recent ban on overseas shipments of coke, a key ingredient in steel making. Similarly, the United States, the world's largest exporter of scrap iron, is seeking to regulate its scrap iron exports at the recommendation of domestic consumers.

The growing scarcity of raw materials is already forcing South Korea's small- and medium-sized steel makers to suspend or reduce operations.

POSCO, South Korea's largest steel maker, and other major steel producers are expected to reduce output, starting in the second quarter, if supply problems persist. Asia Pulse